Learning Objective

Understand how to calculate the fixed and variable components of mixed cost, using a scatterplot, the high-low method, and using Excel

Instructions

The company has noticed a considerable fluctuation in its shipping expense from month to month, as shown below:

Month	Units Shipped	Total Shipping Expense
January	4	$2,200
February	7	$3,100
March	5	$2,600
April	2	$1,500
May	3	$2,200
June	6	$3,000
July	8	$3,600

Required do the following in an Excel spreadsheet:

1. Prepare a scattergraph using the data given above. Plot cost on the vertical axis and activity on the horizontal axis. Is there an approximately linear relationship between shipping expenses and the number of units shipped?
2. Using the high-low method, estimate the cost formula for shipping expenses. Draw a straight line through the high and low data points shown in the scattergraph that you prepared in requirement 1. Make sure your line intersects the Y-axis.