HighLow Method; Predicting Cost, Scattergraph Analysis & Le
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Lakeshore Hotels GuestDays:
Month GuestDays of
Occupancy Custodial Supplies
Expense
March ................... 4,000 $7,500
April ..................... 6,500 $8,250
May ...................... 8,000 $10,500
June ..................... 10,500 $12,000
July ...................... 12,000 $13,500
August ................. 9,000 $10,750
September ........... 7,500 $9,750
Guestdays is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guestdays.
Required:
1. Using the highlow method, estimate a cost formula for custodial supplies expense.
2. Using the cost formula you derived above, what amount of custodial supplies expense would you
â?¢ expect to be incurred at an occupancy level of 11,000 guestdays?
[EXERCISE 3 Scattergraph Analysis; HighLow Method [L02, L03]
Refer to the data for Lakeshore Hotel in Exercise 38.
Required:
1. Prepare a scattergraph using the data from Exercise 38. Plot cost on the vertical axis and activity on the horizontal axis. Using a ruler, fit a straight line to your plotted points.
2. Using the quickanddi1ty method, what is the approximate monthly fixed cost? The approximate vari
able cost per guestday?
3. Scrutinize the points on your graph and explain why the highlow method would or would not yield an accurate cost formula in this situation.
Required:
Using leastsquares regression, estimate the fixed cost and variable cost elements of monthly car wash costs. The fixed cost element should be estimated to the nearest dollar and the variable cost element to the nearest cent.
EXERCISE 3A2 LeastSquares Regression [LOl, L05]
George Caloz & FIâ?¢eres, located in Grenchen, Switzerland, makes prestige highend custom watches in small lots. One of the company's products, a platinum diving watch, goes through an etching process. The company has observed etching costs (expressed in Swiss Francs, SFr) as follows over the last six weeks:
Total
Week Units Etching Cost
1 ................. 4 SFr18
(
2 â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢â?¢
3 17
3 ................. 8 25
4 ................. 6 20
5 ................. 7 24
6 ................. 2 16

30 SFr120
For planning purposes, management would like to know the amount of variable etching cost per unit and the total fixed etching cost per week.
Required:
1. Using the leastsquares regression method, estimate the variable and fixed elements of etching cost.
2. Express the cost data in (1) above in the form Y =a + bX.
3. If the company processes five units next week, what would be the expected total etching cost?
PROBLEM 423 Sales Mix; Bre kEven Analysis; Margin of Safety [L07, L09]
Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales data for the two products follow:
Selling price per unit ........................................................ Variable expenses per unit ..............................................
Number of units sold annually .........................................
Hawaiian
Fantasy
$i5
$9
20,000
Fixed expenses total $475,800 per year. The Republic of Palau uses the U.S. dollar as its currency.
Required:
I. Assuming the sales mix given above, do the following:
a. Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.
b. Compute the breakeven point in dollars for the company as a whole and the margin of safety in both dollars and percerit.
2. The company has developed a new product to be called Samoan Delight. Assume that the company could selllO,OOO units at $45 each. The vmiable expenses would be $36 each. The company's fixed
expenses would not change.
a. Prepareâ?¢ another contribution format income statement, including sales of the Samom1 Delight
(sales of the other two products would not change).
b. Compute the company's new b1'eakeven point in dollars and the new margin of safety in both
dollarsrui percent, . .. ..
3. The president ()fthe companyexal:nines your figures and says, "There's something strange here. Our
fixed expenses haven't changed and you show greater total contribution margin if we add the new product, but .you also show our breakeven point going up. With greater contribution margin, the breal}even point should go down, not up. You've made a niistake somewhere." Explain to the presi dent what has happened.
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Your tutorial is attached in Excel (click in cells to see computations), with problems on separate tabs. Instructional comments are made throughout and formulas are given to make this easy to follow. Workedout examples are very good instructional guides so study this to increase your understanding.