Problem 3 High Low Method Maintenance Equipment, Inc , would like to estimate costs associated with its sales personnel Salespeople are paid a salary plus commission Commission rates vary among products and are based on sales dollars The company reported the following monthly cost data related to sales personnel Reporting Period (Month) Total Costs Sales Amount January $710,000 $13,800,000 February 695,000 13,600,000 March 765,000 15,100,000 April 650,000 12,000,000 May 775,000 15,500,000 June 750,000 14,700,000 July 715,000 14,500,000 August 680,000 13,100,000 September 830,000 16,500,000 October 815,000 16,000,000 November 800,000 15,600,000 December 690,000 13,200,000 Required Use the four steps of the high low method to estimate the total fixed cost per month and the variable cost per sales dollar State your results in the cost equation form Y f v X by filling in the dollar amounts for f and v What would Maintenance Equipment's estimated costs be if it had sales of $12,500,000 next month What would Maintenance Equipment's estimated costs be if it had sales of $20,000,000 next month Why should you feel uncomfortable estimating costs for $20,000,000 in sales Problem 4 CVP Sensitivity Analysis (Multiple Products) Strausburg Company produces two different products that have the following monthly data (this is the base case) Violin Cello Total Selling price per unit $300 $1,200 Variable cost per unit $120 $720 Expected unit sales 1,400 600 2,000 Sales mix 70 percent 30 percent 100 percent Fixed costs $180,000 Required For each of the independent situations in requirements b through d , assume that total sales remains at 2,000 units Make a contribution margin income statement Refer to the base case What would the operating profit be if the Violin sales price (1) increases 20 percent, or (2) decreases 20 percent Refer to the base case What would the operating profit be if the Violin sales volume increases 400 units with a corresponding decrease of 400 units in Cello sales Refer to the base case What would the operating profit be if total fixed costs increase five percent Does this increase in fixed costs result in higher operating leverage or lower operating leverage Explain

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Problem 3: High-Low Method. Maintenance Equipment, Inc., would like to estimate costs associated with its sales personnel. Salespeople are paid a salary plus commission. Commission

Problem 3: High-Low Method.Maintenance Equipment, Inc., would like to estimate costs associated with its sales personnel. Salespeople are paid a salary plus commission. Commission rates vary among products and are based on sales dollars. The company reported the following monthly cost data related to sales personnel:

Reporting Period (Month)	Total Costs	Sales Amount
January	$710,000	$13,800,000
February	695,000	13,600,000
March	765,000	15,100,000
April	650,000	12,000,000
May	775,000	15,500,000
June	750,000	14,700,000
July	715,000	14,500,000
August	680,000	13,100,000
September	830,000	16,500,000
October	815,000	16,000,000
November	800,000	15,600,000
December	690,000	13,200,000

Required:
Use the four steps of the high-low method to estimate the total fixed cost per month and the variable cost per sales dollar. State your results in the cost equation form Y =f+vX by filling in the dollar amounts forfandv.
What would Maintenance Equipment's estimated costs be if it had sales of $12,500,000 next month?
What would Maintenance Equipment's estimated costs be if it had sales of $20,000,000 next month? Why should you feel uncomfortable estimating costs for $20,000,000 in sales?

Problem 4: CVP Sensitivity Analysis (Multiple Products).Strausburg Company produces two different products that have the following monthly data (this is the base case):

	Violin	Cello	Total
Selling price per unit	$300	$1,200
Variable cost per unit	$120	$720
Expected unit sales	1,400	600	2,000
Sales mix	70 percent	30 percent	100 percent
Fixed costs			$180,000

Required:
For each of the independent situations in requirementsbthroughd, assume that total sales remains at 2,000 units.
Make a contribution margin income statement.
Refer to the base case. What would the operating profit be if the Violin sales price (1) increases 20 percent, or (2) decreases 20 percent?
Refer to the base case. What would the operating profit be if the Violin sales volume increases 400 units with a corresponding decrease of 400 units in Cello sales?
Refer to the base case. What would the operating profit be if total fixed costs increase five percent? Does this increase in fixed costs result in higher operating leverage or lower operating leverage? Explain.