The following information is available for a company: Year 1: Sales/production units = 134400 Year 1: Total

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Question:

The following information is available for a company:

Year 1: Sales/production units = 134400 Year 1: Total Cost $ = 270600 Year 1: Cost Inflation Index = 100

Year 2: Sales/production units = 142600 Year 2: Total Cost $ = 288744 Year 2: Cost Inflation Index = 107

Year 3: Sales/production units = 151200 Year 3: Total Cost $ = 312780 Year 3: Cost Inflation Index = 115

Year 4: Sales/production units = 150200 Year 4: Total Cost $ = 318500 Year 4: Cost Inflation Index = 120

Required

1. Determine a linear function for total costs per annum (at Year 1 prices) from the above data, using the high-low method. (Do not round the variable cost elements in the intermediate calculations. Round the first coefficient to 3 decimal places and the second coefficient the to nearest whole number.)

2. Using the function from requirement 1 and the data above, evaluate the accuracy of the function as a predictor of costs. (Round your answers to 2 decimal places. Enter your answers as a positive values. Do not round variable cost element in intermediate calculations. Round your other intermediate calculations to nearest whole pound.) Is the cost equation (adjusted for inflation) an accurate predictor of costs under existing operating conditions?

multiple choice Yes /No

3. Using the function from requirement 1, forecast the total costs in Year 5 based on a volume of 154,400 units and a cost inflation index for Year 5 is 125.8. (Do not round variable cost element in intermediate calculations. Round your answer to the nearest whole pound.)

4. Selling prices in Year 5 are expected to be 15% higher than those in Year 1, when total sales revenue was £319,872. Draw a profit-volume chart for Year 5, showing sales up to 180,000 units per annum. (Do not round your intermediate calculations. Round your answers to the nearest whole pound.)