Chapter 6 Activity Analysis, Cost Behavior, and Cost Estimation 6. Help Carlos Pereira write a brief memo to the company's president explaining why the cost esti- mates developed in requirements (4) and (5) differ. 7. Predict the company's material-handling costs for a month when 1,150 units of activity are recorded. Use each of your cost equations to make the prediction. Which prediction would you riy prefer to use? Why? using visually-Fitted is better because it uses all the last data in developing the cost equat vel Cape Verde Marine Supply is a wholesaler for a large variety of boating and fishing equipment. The company's controller, Carlos Pereira, has recently completed a cost study of the firm's material-handling department in which he used work measurement to quantify the department's activity. The control factor unit used in the work-measurement study was hundreds of kilograms of equipment unloaded or loaded at the company's loading dock. Pereira compiled the following data. Problem 6-41 Work Measurement, Cost Estimation with Different Methods; Wholesaler (LD 1, 2, 3, 3. Variable cost per unit of activity: $2.00 Month B2 January February March April May June July August September October November December Units of Activity (hundreds of kilograms of equipment loaded or unloaded) 700 600 550 1,300 900 1,000 1,200 1,100 500 650 800 900 Material Handling Department Costs $11,350 11,350 11,050 12.120 11,400 12 12,000 97 12,550 11,100 10,200 11,250 11,300 11,700 Zooo 3oo slopes 11800-9 02 Tics 9700 + 2X Required: 1. Draw a scatter diagram of the cost data for the material handling department. 2. Visually fit a cost line to the scatter diagram. 3. Estimate the variable and fixed components of the department's cost behavior pattern using the visually fit cost line. 4. Using your estimate from requirement (3), specify an equation to express the department's cost behavior. 5. Estimate the material handling department's cost behavior using the high-low method. Use an equation to express the results of this estimation method. Chapter 6 Activity Analysis, Cost Behavior, and Cost Estimation 6. Help Carlos Pereira write a brief memo to the company's president explaining why the cost esti- mates developed in requirements (4) and (5) differ. 7. Predict the company's material-handling costs for a month when 1,150 units of activity are recorded. Use each of your cost equations to make the prediction. Which prediction would you riy prefer to use? Why? using visually-Fitted is better because it uses all the last data in developing the cost equat vel Cape Verde Marine Supply is a wholesaler for a large variety of boating and fishing equipment. The company's controller, Carlos Pereira, has recently completed a cost study of the firm's material-handling department in which he used work measurement to quantify the department's activity. The control factor unit used in the work-measurement study was hundreds of kilograms of equipment unloaded or loaded at the company's loading dock. Pereira compiled the following data. Problem 6-41 Work Measurement, Cost Estimation with Different Methods; Wholesaler (LD 1, 2, 3, 3. Variable cost per unit of activity: $2.00 Month B2 January February March April May June July August September October November December Units of Activity (hundreds of kilograms of equipment loaded or unloaded) 700 600 550 1,300 900 1,000 1,200 1,100 500 650 800 900 Material Handling Department Costs $11,350 11,350 11,050 12.120 11,400 12 12,000 97 12,550 11,100 10,200 11,250 11,300 11,700 Zooo 3oo slopes 11800-9 02 Tics 9700 + 2X Required: 1. Draw a scatter diagram of the cost data for the material handling department. 2. Visually fit a cost line to the scatter diagram. 3. Estimate the variable and fixed components of the department's cost behavior pattern using the visually fit cost line. 4. Using your estimate from requirement (3), specify an equation to express the department's cost behavior. 5. Estimate the material handling department's cost behavior using the high-low method. Use an equation to express the results of this estimation method