Question 5: Cost structure estimation month activity volume in units total costs Oct 80 $6,920 Nov 65 $7,100 Dec 110 $8,900 a) Which cost structure estimation method should we use? o high-low method o account classification method b) To identify the low and high points, we should look for lowest/highest costs 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 110 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. NO: 5,000 units is outside the relevant range (the normal range of activity is around 65-110 units)