Basics of Cost Behavior

Duncan Shirts sells championship shirts with official sports league logos. Duncan employs five college students who serve as sales representatives in their spare time. Each sales representative at Duncan earns a salary of $10,000 per year, plus a commission of $5 per each shirt he or she sells. Last year, the company sold a total of 50,000 shirts.

The cost equation for total selling cost is:

Total selling cost = Total Fixed Costs + Variable Rate x Units of Output

The variables in the total selling cost equation are:

	Total Fixed Costs =
	Variable rate =
	Units of output = number of shirts sold

	The total variable cost for Duncan Shirts is:
	The total selling cost for Duncan Shirts is:
	If the company expects to sell 75,000 shirts for the coming year, budgeted total selling cost is:

The High-Low Method

Ginobli Company had the following 10 months of data on materials handling cost and number of parts within its manufacturing plant

Month	Materials Handling Cost	Number of Parts
January	$61,550	450
February	74,500	700
March	78,875	625
April	65,250	550
May	66,375	525
June	80,625	650
July	79,125	675
August	88,000	800
September	86,750	850
October	82,125	775

Find the high point and the low point for Ginobli Company.

	High point:
	Month =
	Cost =
	Activity level (# of parts) =

	Low point:
	Month =
	Cost =
	Activity level (# of parts) =

Calculate Ginobli Companys variable rate for materials handling costs based on the number of parts.

Variable rate = per part

Calculate Ginobli Companys fixed monthly cost of materials handling.

Fixed cost =

Based on the variable rate and fixed monthly cost, provide the following estimated materials handling costs for the coming year if the number of parts expected is 8,000:

	Expected annual fixed cost =
	Expected annual variable cost =
	Total annual materials handling cost =