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MANAGERIAL ACCOUNTING QUESTIONS

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Question 5: Cost structure estimation activity volume month Oct Nov Dec in units 80 75 100 total costs $4,085 $4,250 $5,000 a) Which cost structure estimation method should we use? O account classification method O high-low method b) To identify the low and high points, we should look for O lowest/highest costs O lowest/highest activity c) Estimate the cost structure parameters: total FC unit VC Write down the total cost equation TC = * volume d) Predict the total costs of producing 80 units: TC = e) Can we use the estimates from (c) to predict costs at volume of 5,000 units? YES: Just plug in volume=5,000 in the total cost equation. O NO: 5,000 units is outside the relevant range (the normal range of activity is around 75-100 units)