The controller of Rather Production has collected the following monthly expense data for analyzing the cost behavior of electricity costs. Total Electricity Costs Total Machine Hours January February $2,500 300 3,000 350 March 3,600 500 April 4,500 690 May 3,200 400 June 4,900 700 July 4,100 650 August 3,800 520 September 5,100 680 October 4,200 630 November 3,300 350 December 5,860 720 Instructions: a. Determine the fixed- and variable-cost components using the high-low method. Fixed Cost: $100 Variable Cost: $8 per hour b. Determine the fixed- and variable-cost components using regression. C. d. What electricity cost does the cost equation (using the high-low method) estimate for a level of activity of 500 machine hours? By what amount does this differ from March's observed cost for 500 machine hours? What electricity cost does the cost equation (using regression) estimate for a level of activity of 700 machine hours? By what amount does this differ from June's observed cost for 700 machine hours? Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $24,000 in fixed costs to the $270,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed with Mary's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety. Instructions: a. Compute the current break-even point in units, and compare it to the break-even point in units if Mary's ideas are used. 1687500% b. Compute the margin of safety ratio for current operations and after Mary's changes are introduced. (Round to nearest full percent.) 16% c. Prepare a CVP income statement for current operations and after Mary's changes are introduced. (Show column for total amounts only.) Would you make the changes suggested? CVP Income Statement Current New Sales Variable costs Contribution Margin 320,000 Fixed Costs Net Income 270,000 800,000 912,000 480,000 576,000 336,000 294,000 50,000 42,000 Since income has decreased thus changes should not be implemented