Question
High-Low Method to Determine Fixed Cost and Variable Rate Dohini Manufacturing Company had the following 12 months of data on purchasing cost and number of
High-Low Method to Determine Fixed Cost and Variable Rate
Dohini Manufacturing Company had the following 12 months of data on purchasing cost and number of purchase orders.
Month | Purchasing Cost | Number of Purchase Orders | ||
January | $18,860 | 370 | ||
February | 18,040 | 330 | ||
March | 19,250 | 370 | ||
April | 18,050 | 410 | ||
May | 19,345 | 400 | ||
June | 19,500 | 450 | ||
July | 19,670 | 460 | ||
August | 20,800 | 560 | ||
September | 19,430 | 440 | ||
October | 20,020 | 500 | ||
November | 18,800 | 470 | ||
December | 19,340 | 480 |
Required:
1. Determine the high point and the low point.
Month with high number of purchase orders | |
Month with low number of purchase orders |
2. Calculate the variable rate for purchasing cost based on the number of purchase orders. (Round to the nearest cent.) $ per purchase order
3. Calculate the fixed monthly cost of purchasing. $
4. Write the cost formula for the purchasing activity showing the fixed cost and the variable rate. Round variable rate to the nearest cent.
Total purchasing cost | = | $ | + | ($ | x | ) |
5. If Dohini Manufacturing Company estimates that next month will have 420 purchase orders, what is the total estimated purchasing cost for that month?
$
6. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,350 purchase orders? What will estimated total purchasing cost be? $
What is the total fixed purchasing cost? $
Why doesn't it equal the fixed cost calculated in Requirement 3 above?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started