Question

EXERCISE 3-2 Scattergraph Analysis [LO2] Oki Products, Ltd., has observed the following processing costs at various levels of activity over the last 15 months: Units Processing Required: 1. Prepare a scattergraph using the above data. Plot cost on the vertical axis and activity on the horizontal axis. Fit a line to your plotted points using a ruler. 2. Using the quick-and-dirty method, what is the approximate monthly fixed cost? The approximate vari- able cost per unit processed? Show your computations. 10,500 7,500 5.000 11,500 6.000 8,500 10,000 6,500 9,500 8.000 $52,000 $44,000 $41,000 $52,000 $43,000 $48,000 $50,000 $44.000 $48.000 $46,000

Answer 1

Answers:

a.

$60,000 $50,000 $40,000 PROCESSING COST $30,000 $20,000 $10,000 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 UNITS PRODUCED

Inorder to create the scatter diagram, i have used MS Excel Graphs function.

That is done by inptting the table provided in the question to excel and click on Insert -> Graphs-> Scatter Chart

The X axis shows unit purchased and Y axis shows processing costs.

The processing costs ranges from 38,000 to 56,000 and the units ranges from 4,500 to 12,000.

b.

The approximate fixed cost =  $30,000 (the point where the line intersects the cost axis)

The variable cost per unit processed could be calculated by 8000 units produced line intersection:

Total cost at 8,000 unit produced	46,000
fixed costs (less)	30,000
Variable costs at 8000 unit	16000

So,Variable costs/unit produced = 16000/8000 = $2 per unit

So the cost formula will be,  y= 2x+30,000