Handout Exercises on Cost Functions Managerial Accounting Concepts Estimating a Cost Function - 2-Point Method (High Low) Cindy Hill is examining product distribution costs in the Kansas region of Hill Products. Hill Products has over 50 insulation products that it sells in an eleven state Midwest region. As part of the distribution process, products are stored is three warehouses strategically located throughout the region Orders are taken at the central headquarters and an order form is faxed to the appropriate location for filling and shipping. Cindy has gathered the past six months distribution costs and the number of orders filled during each of the six months. The data is reported below: Month Distribution Costs Number of Orders Filled January $ 340,000 3,000 February 400,000 4,000 March 529,000 7.000 April 477,000 6,000 May 587,000 8,000 June 435,000 5,000 Required: In the space provided, compute and answer the following questions; (a) Compute the linear cost function, relating distribution costs to the number of orders filled using the 2-point (high-low) method of cost estimation. 6) What would Hill predict (budget) the distribution costs for July to be if she estimated the number of orders to be filled in July to be 7,500 orders? What would Hill predict (budget) the distribution costs for July to be if she estimated the number of orders to be filled in July to be 9,000 orders? (d) Comment on the relevant range of activity concept and how it applies to 6) and (c) above. Handout Exercises on Cost Functions Managerial Accounting Concepts Determining Cost Behavior and Estimating a Cost Function Monthly costs for the production department of the Hill Company for two levels of production are as follows: Cost Item 2.000 Units 4.000 Units Direct Materials $20,000 $40,000 Production Supervisory Salary 8,000 8,000 Maintenance 7,000 11,000 Required: Indicate which costs are variable, fixed and mixed, and give the reason for each answer. Required: Develop the appropriate cost function for the Hill Company to use in predicting its production department costs for next month if it plans to make 2,800 units. Required: Determine if the cost function was a good predictor of production department costs if the actual costs for the month were $44.000 and the company made 3,300 units. The company has set an acceptable tolerance rate of plus or minus 5% for actual costs from budgeted costs