Question

Problem #1-15 Points Dave's Dogs sells steamed hot dogs for $2.50 each. The company provided the following units and total cost data concerning its hotdog sales for the last six months of 2017. Cost Units July $3,020 2,400 August 2,795 2,150 September 3,040 2,300 October 2,700 2,250 November 2,750 2,160 December 3,085 2,340 a. Use the high-low method to estimate fixed and variable costs. b. Estimate total profit in a month when 2,200 hotdogs are sold. c. Based on these estimates, calculate the number of hotdogs that must be sold to break-even. d. How does linear regression differ from the high-low method in estimating fixed and variable costs? e. Develop a cost function using the regression feature on Microsoft Excel.

Answer 1

a,

	high	Low	change
unit	2400	2150	250[2400-2150]
cost	3020	2795	225[3020-2795]

variable cost = 225/250

=0.9$ per unit

3020= fixed cost + 0.9*2400

3020-2160= fixed cost

fixed cost=860$

b.2200hotdogs

sales	5500	2200*2.50
less:
fixed cost	860
variable cost	1980	[0.9*2200]
net profit	2660$	[5500-860-1980]

c.break even = fixed cost/contribution margin

contribution margin = sales-variable cost

=2.50-0.9

=1.6$

=860/1.6

=538 units must be sold to break even( no profit no loss.)

d.linear regression is a method that find out relationship between continuous variables

variable should be plotted on straight line

Y= a +x+e

Y is dependent variable

X is independent variable

a is intercept of regression line

b is slope of regression line

e is regression residual

whereas high low method finds difference between highest and lowest activity. it finds out variable cost per unit

and reduce it from total cost to find fixed cost.