Problem 4.3 ( LO1,2 ) High-Low, Break-Even Lancer Audio produces a high-end AV receiver that sells for $1,300. Total operating expenses for the past 12 months are as follows:

Units Produced and Sold Cost

August 165 $140,345

September 130 116,990

October 150 130,650

November 145 127,670

December 155 133,790

January 170 143,910

February 140 123,520

March 150 130,950

April 145 127,385

May 150 129,865

June 140 122,720

July 135 120,255

Required

1. Use the high-low method to estimate fixed and variable costs.

2. Based on these estimates, calculate the break-even level of sales in units. (Round to the nearest whole unit.)

3. Calculate the margin of safety for the coming August assuming estimated sales of 175 units.

4. Estimate total profit assuming production and sales of 175 units.

5. Comment on the limitations of the high-low method in estimating costs for Lancer Audio.