Question

Phillips Company manufactures air-conditioning units for commercial buildings and has noticed considerable variation in shipping expenses from month to month as per the data below:

	Units	Total Shipping
Month	Shipped	Expense
January	4	$	2,280
February	4	$	3,180
March	5	$	2,700
April	2	$	1,302
May	3	$	2,250
June	6	$	3,120
July	8	$	4,512

4. What is the cost formula for shipping expenses?

	Y =    + X

5. If seven air conditioners are shipped in August, estimate the total shipping expenses.

	Total shipping expense

6. If nine air conditioners are shipped in September, estimate the fixed shipping expenses.

	Fixed expense

7. If 10 air conditioners are shipped in October, estimate the variable shipping expense.

	Variable expense

8. If the air conditioners have an average sales price of $7,500, variable manufacturing costs are $3,750 per unit, variable manufacturing overhead is $1,500 per unit, and variable selling and administration costs (excluding shipping) are $300 per unit, what is the contribution margin per unit?

	Contribution margin per unit

9. Given the facts in part 3–8, estimate the total contribution margin for August if seven air conditioners are produced and sold.

	Total contribution margin

10. Given the facts in part 3–8, if total fixed costs (excluding shipping) are $1,850 per month, estimate operating income for August if seven air conditioners are produced and sold.

	Operating income

Answer 1

Month	Units shipped (x)	Expense (y)	x*y	x*x	y*y
January	4	2,280	9,120	16	5,198,400
February	4	3,180	12,720	16	10,112,400
March	5	2,700	13,500	25	7,290,000
April	2	1,302	2,604	4	1,695,204
May	3	2,250	6,750	9	5,062,500
June	6	3,120	18,720	36	9,734,400
July	8	4,512	36,096	64	20,358,144
	32	19,344	99,510	170	59,451,048

n	7
n*Sum(xy)	696,570
Sumx*Sumy	619,008
n*sumx2	1,190
(Sumx)2	1,024

b = (696570 - 619008)/(1190-1024) = 467.24

a = (19344 - 467.24*32)/7 = 627.47

4) y = 627.47 + 467.24*x

5) For x = 7, total expense y = 627.47 + 467.24*7 = 3898.16 $

6) The fixed expense = a = 627.47 $ (It will remain same irrespective of number of AC shipped)

7) The variable expense = b*x

for x = 10, Variable expense = 467.24*10 = 4672.4 $