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Objective: Demonstrate understanding of Cost Estimation, Cost-Volume-Profit, and Short- term Decision-making Deliverables: 1) Using the data on the Cost Data tab of the Template
Objective: Demonstrate understanding of Cost Estimation, Cost-Volume-Profit, and Short- term Decision-making Deliverables: 1) Using the data on the "Cost Data" tab of the Template file, a. Create a scatterplot graph of Total Cost against the Activity measure (Units Sold) on the "Graph" tab; b. Visually identify any potential outlier data; c. Identify and interpret any cost behavior using terms like Fixed Cost, Variable Cost, and Step-Fixed Cost that is indicated by any patterns in the data 2) Using the data on the "Cost Data" tab of the Template file, find estimates for Unit Variable Cost and Total Fixed Cost to create two different General Linear Cost Estimation equations (Total Cost Unit Variable Cost x Units Sold + Total Fixed Cost). To illustrate, if my estimates for Unit Variable Cost were $10 per unit sold and for Total Fixed Cost were $50,000 then my General Linear Cost Estimation equation would be Total Cost = $10 per Unit Sold x Units Sold + $50,000 Use each of the following two methods to create a General Linear Cost Estimation Equation: a. High-Low Method (on the "High-Low" tab in the Template) b. Linear Regression Method (on the "Regression Analysis tab in the Template c. On the "Cost Estimation Discussion" tab, discuss why the General Linear Cost Estimation equations differ between the two methods, and recommend which (if either) equation should be used. Justify your recommendation. 3) Assume that a company has forecasted 6,200 units sold, has an average selling price of $25.50 per unit, unit variable cost of $9.50 per unit, and a total fixed cost equal to $88,000. Using the "Contr-format I.S." template provided to perform the following analyses: a. Create a Contribution-format Income Statement based on the forecasted data b. Create a Contribution-format Income Statement based on the Break-even Sales Volume c. Create a Contribution-format Income Statement based on a target profit equal to $8,000 d. Calculate Margin of safety for parts a., b. and c. above (as a percentage, in units sold, and in sales revenue terms) e. Calculate Operating Leverage and Degree of Operating Leverage for parts a. and c. above
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