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Directions: Answer all three questions. Please submit your work in Word or PDF formats only. You can submit an Excel file to support calculations, but please ?cut and paste? your solutions into the Word or PDF file. Be sure to show how you did your calculations. Also, please be sure to include your name at the top of the first page of your file.

Question #1

A company estimates that its total cost to send out invoices, receive payments, deposit the payments, and update accounting records was $10 per sale in 2014. In 2014, there were 10,000 sales and fixed costs of $60,000. In 2015, the company expects total fixed costs and variable costs per unit to be the same as in 2014. If the company budgets 10,500 sales in 2015, what are the expected total costs and expected costs per unit for 2015?

Assume the same facts as in part a, except the company expects 9,500 sales in 2015. What are the expected total costs and expected costs per unit for 2015?

Question #2

A company estimates that its total cost to acquire materials, set up machines, and produce products is $25 per unit produced in 2014. In 2014, there were 50,000 units produced and variable costs per unit produced totaled $15. In 2015, the company expects total fixed costs and variable costs per unit to be the same as in 2014. If the company budgets to produce 52,000 units in 2015, what are the expected total costs and expected costs per unit for 2015?

Assume the same facts as in part a, except the company expects to produce 49,000 units in 2015. What are the expected total costs and expected costs per unit for 2015?

Question #3

The Bear Company collected the following monthly information on units produced and electricity costs:

Month	Units Produced	Electricity Costs
January	50,000	$78,000
February	48,000	$74,500
March	47,000	$72,000
April	54,000	$81,000
May	58,000	$86,000
June	53,000	$79,500

Using the high-low method, prepare an estimate of electricity costs for July, assuming 53,500 units are expected to be produced in July.

ACT 5060 - Accounting for Decision Makers Chapter 2 - Cost Behavior, Cost Estimation, & Activity Analysis ACT 5060 Chapter 2 Felo Chapter Outline Cost behavior Cost estimation Activity analysis ACT 5060 Chapter 2 Felo Cost Behavior Introduction How does a cost change (if at all) when activity changes? Traditional approach is to define activity in terms of units or volume of service Alternative approach is to define activities more broadly Used to predict costs at various activity levels Used to assess risk (operating leverage) ACT 5060 Chapter 2 Felo Cost Behavior Patterns Focus on TOTAL costs (not unit) Variable costs Fixed costs Mixed costs (Semi-variable) Step costs Classification depends on time frame, the activity, & relevant range of the activity ACT 5060 Chapter 2 Felo More Detail on Fixed Costs This is related to our budgeting discussion Discretionary fixed costs (managed fixed costs) - decided on as part of budget process, so can be changed in short run Committed fixed costs (capacity costs) - required to maintain current service or required under law / contract ACT 5060 Chapter 2 Felo Cost Estimation Using past data to identify cost behavior and predict future costs Unsophisticated methods such as high-low method and scatter diagrams More sophisticated methods such as simple regression and multiple regression Be aware of impact of learning and changes in technology Also be aware of coincidences ACT 5060 Chapter 2 Felo High-Low Method Use 2 data points to estimate variable and fixed costs Estimated VC ratio = Change in Operating Costs / Change in Sales Estimated fixed costs = Total costs - Estimated VC Predict future costs based on estimated VC ratio, expected sales, & estimated fixed costs ACT 5060 Chapter 2 Felo High-Low Example - Step 1 2013 2012 Net Sales $74,452 $61,093 Total Operating Costs $65,899 $54,798 Change in Op Costs $11,101 Change in Net Sales $13,359 Estimated VC ratio 83.10% ACT 5060 Chapter 2 Felo High-Low Example - Step 2 2013 2012 Net Sales $74,452 $61,093 Total Operating Costs $65,899 $54,798 Estimated VC (83.10%) $61,868 $50,767 Estimated FC $4,031 $4,031 ACT 5060 Chapter 2 Felo High-Low Example - Step 3 Actual 2014 Net Sales $88,988 Estimated VC (83.10%) $73,947 Estimated FC $4,031 Estimated Total Operating Costs $77,978 Actual 2014 Total Operating Costs $77,850 Dollar Error $128 Percentage Error ACT 5060 Chapter 2 Felo 0.16% Regression Analysis Using statistical analysis to estimate costs Uses more data than high-low method Simple regression - one independent variable (predictor) Multiple regression - multiple independent variables (predictors) Diagnostic statistics allow us to statistically evaluate the equation for accuracy ACT 5060 Chapter 2 Felo Activity Analysis In some instances costs fluctuate based on something other than units or volume Examples: Set-up costs, billing, and design costs Predicting these costs based on units or volume is NOT ACCURATE! ACT 5060 Chapter 2 Felo Activity Hierarchy Unit-level activity - activity performed on each individual unit (variable cost) Batch-level activity - activity performed once per batch or order Product-level activity - activity performed for each product / service / customer, not individual batches or units Facility-level activity - activity performed to maintain capacity (fixed cost) ACT 5060 Chapter 2 Felo ACT 5140 - Accounting for Decision Makers HW #4 - Chapter 2 Directions: Answer all three questions. Please submit your work in Word or PDF formats only. You can submit an Excel file to support calculations, but please \"cut and paste\" your solutions into the Word or PDF file. Be sure to show how you did your calculations. Also, please be sure to include your name at the top of the first page of your file. Question #1 a) A company estimates that its total cost to send out invoices, receive payments, deposit the payments, and update accounting records was $10 per sale in 2014. In 2014, there were 10,000 sales and fixed costs of $60,000. In 2015, the company expects total fixed costs and variable costs per unit to be the same as in 2014. If the company budgets 10,500 sales in 2015, what are the expected total costs and expected costs per unit for 2015? b) Assume the same facts as in part a, except the company expects 9,500 sales in 2015. What are the expected total costs and expected costs per unit for 2015? Question #2 a) A company estimates that its total cost to acquire materials, set up machines, and produce products is $25 per unit produced in 2014. In 2014, there were 50,000 units produced and variable costs per unit produced totaled $15. In 2015, the company expects total fixed costs and variable costs per unit to be the same as in 2014. If the company budgets to produce 52,000 units in 2015, what are the expected total costs and expected costs per unit for 2015? b) Assume the same facts as in part a, except the company expects to produce 49,000 units in 2015. What are the expected total costs and expected costs per unit for 2015? Question #3 The Bear Company collected the following monthly information on units produced and electricity costs: Month January February March April May June Units Produced 50,000 48,000 47,000 54,000 58,000 53,000 Electricity Costs $78,000 $74,500 $72,000 $81,000 $86,000 $79,500 Using the high-low method, prepare an estimate of electricity costs for July, assuming 53,500 units are expected to be produced in July. Answer 1: Variable cost per unit in 2014 =$10 Fixed cost in 2014 = $60,000 Case 1: Company budgets a sale of 10,500 units Variable costs per unit and fixed costs are constant 2015. Variable Cost per unit in 2015 = $ 10 Fixed Cost in 2015 = $60,000 Budgeted sales for 2015 = 10,500 units Total variable costs ($10*10,500) =105,000 Total expected cost = Fixed Cost + Variable Cost = $60000 +$105000 =$165,000 Expected costs per unit =165,000/10,500 =$15.71 Case 2: Company expects a sale of 9,500 units Total expected costs = 10*(9,500) +60,000 = $155,000 Expected costs per unit = 155,000/9,500 = $16.32 Answer 2: Case 1: Company budgets to produce 52,500 units Fixed cost per unit = $25 -$15 = $10 Number of units produced in 2014 = 50,000 Fixed Cost = 10*(50,000) = $500,000 Variable cost per unit = $15 Total variable costs for 2015 (15*52,000) = $780,000 Total expected costs for 2015 = $500,000+780,000 = $1,280,000 Per unit cost = 1280000/52000 = 24.62 Case 2: If 49,000 units are produced in 2015 Fixed Cost = $500,000 Variable Cost (49,000*15) = $735,000 Expected total Cost = $1,235,000 Expected unit cost ($1,235,000/49000) = $25.20 Answer 3: Highest level of activity x2=58000, y2 =86000 Lowest level of activity x1 =47000, y1 =72000 Estimated Variable cost per unit = Change in Operating Costs / Change in Sales = (86,000-72,000)/(58,000-47,000) = 14/11 = $1.2727 Estimated Fixed cost = Total Costs - Estimated Variable Cost = 86,000-(14/11*58,000) =72,000-(14/11*47,000) = $12,181.8181 = $12,181.82 Cost volume formula Electricity cost for July Y = 12,181.82+(14/11)x = 12,181.82+ (14/11*53500) = $86,636.3655 = $86,636