The following data relating to units shipped and total shipping expense have been assembled by Archer Company, a wholesaler of large, custom-built air-conditioning units for commercial buildings:
Month ............Units Shipped.......... Total Shipping Expense
January .................................. 3............................... $1,800
February ................................ 6............................... $2,300
March .................................... 4............................... $1,700
April ...................................... 5............................... $2,000
May ....................................... 7............................... $2,300
June ....................................... 8............................... $2,700
July ........................................ 2............................... $1,200
Required:
1. Using the high-low method, estimate a cost formula for shipping expense.
2. The president of the company has no confidence in the high-low method and would like you to check your results using a scatter graph.
a. Prepare a scatter graph, using the data given above. Plot cost on the vertical axis and activity on the horizontal axis. Use a ruler to fit a straight line to your plotted points.
b. Using your scatter graph, estimate the approximate variable cost per unit shipped and the approximate fixed cost per month with the quick-and-dirty method.
3. What factors, other than the number of units shipped, are likely to affect the company's total shipping expense? Explain.