Shafer Company has gathered data on its overhead activities and associated costs for the past 10 months. Theodore, a member of the controller’s department, has convinced management that overhead costs can be better estimated and controlled if the fixed and variable components of each overhead activity are known. One such activity is receiving raw materials (unloading incoming goods, counting goods, and inspecting goods), which she believes is driven by the number of receiving orders. Ten months of data have been gathered for the receiving activity and are as follows:

However, assume that Month 2 is an outlier and use only the remaining 9 months of data in responding to the following requirements. Round all answers to two decimal places.

Required:

1. Prepare a scattergraph. From examining your scattergraph, does the relationship appear to be linear?

2. Use the high-low method to prepare a cost formula for the receiving activity. By how much did the per-unit variable cost and total fixed cost components change as a result of dropping the one outlier data point (i.e., going from using 10 months to only 9 months of data)?

3. Calculate the predicted total cost of receiving for a month in which 1,450 receiving orders are processed.

4. Prepare a scattergraph based on all 10 months of data (as instructed in Requirement 2 from Problem 3-62). Compare the two scattergraphs—one based on 9 months and the other based on 10 months of data—and consider the high-low cost function line that could be drawn in each scattergraph. Briefly explain how and why the two high-low lines differ between the two scattergraphs.

5.Briefly explain how the scattergraph method and the high-low method represent the application of data analytics within management accounting.

Transcribed Image Text:

Month 367SAW21 4 5 8 9 10 Receiving Orders 1,000 700 1,500 1,200 1,300 1,100 1,600 1,400 1,700 900 Receiving Cost $18,000 15,000 28,000 17,000 25,000 21,000 29,000 24,000 27,000 16,000