Chapter 5 Working Papers

QUESTIONS
5.

The variables in the cost equation Y = f + vX are defined as follows:

Y
f
v
X

=
=
=
=

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Q5, Q17

Chapter 5 Working Papers

PROBLEMS (continued)
42.

Account Analysis and Contribution Margin Income Statement

a. Fixed costs per month and variable cost per unit are as follows:
Fixed Costs:

Total monthly fixed costs

Variable Costs:

Total variable costs

Units produced
Variable cost per unit

The cost equation is: Y =

units
per unit

b. Using the equation from above, substitute units for X as follows:

Y =
Y =
Y =
c.

+
+

units )

Contribution margin income statement:

Sales
Variable costs:
Cost of goods sold
Selling and administration
Total variable costs
Contribution margin
Fixed costs:
Cost of goods sold
Selling and administration
Total fixed costs
Operating profit

P42 a., b., and c.

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Chapter 5 Working Papers

PROBLEMS (continued)
43.

High-Low, Scattergraph, and Regression Analysis: Manufacturing Company

a.

Answers may vary slightly due to rounding the variable cost per unit in step 2.
Step 1: Identify the high and low activity levels from the data set.

Step 2: Calculate the variable cost per unit (v); units are measured in machine hours.
Unit variable cost (v) =
v =
v =
v =

hours

hours

hours
per machine hour (rounded)

Step 3: Calculate the total fixed costs (f).

Step 4: State the results in equation form Y = f + vX.

Variable cost per machine hour is from step 2, and total fixed costs are from step 3.
Thus, the equation used to estimate total costs is stated as:
Y

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P43 a.

Chapter 5 Working Papers

PROBLEMS (continued)
43.

High-Low, Scattergraph, and Regression Analysis: Manufacturing Company (continued)

b.

Answers will vary depending on where the cost line is visually fit to the data points.
Step 1: Fill in the columns below to plot the data points in the graph that follows.
Reporting
Period
(Month)
January
February
March
April
May
June
July
August
September
October
November
December

Total
Costs

Machine
Hours

Total Overhead Costs

Step 2: Visually fit a line to the data points and make sure the line touches one data point.
(Note that the line may touch several data points, in which case one must be selected in step 3.)

Machine Hours

P43 b.

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Chapter 5 Working Papers

PROBLEMS (continued)
43.

High-Low, Scattergraph, and Regression Analysis: Manufacturing Company (continued)

Step 3: Estimate the total fixed costs (f).

Step 4: Calculate the variable cost per unit (v); units are measured in machine hours.

Step 5: State the results in equation form Y = f + vX.

c.

d.

The cost equation using the data from regression analysis is:

High-low method:

Scattergraph method:

Regression analysis:

+ (

Y
Y

=
=

+
+ (

+ (

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machine hours)

machine hours)

machine hours)

P43 b., c., and d.

Chapter 5 Working Papers

PROBLEMS (continued)
43.

High-Low, Scattergraph, and Regression Analysis: Manufacturing Company (continued)

e. Using the regression analysis equation, substitute machine hours for X and solve for Y:

P43 e.

+ (

machine hours)

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