PROBLEM: High-Low, Profit Equation
Rhetorix, Inc. produces stereo speakers. Each unit (a pair of speakers) sells for $900. Below is information on production/sales and costs for 2010.
|
Production and |
|
Production |
|
Selling and Admin. |
|
Sales in Units |
|
Costs |
|
|
Costs |
| January |
105 |
|
$88,860 |
|
$23,570 |
| February |
117 |
|
97,600 |
|
25,200 |
| March |
97 |
|
83,007 |
|
22,495 |
| April |
106 |
|
89,600 |
|
23,720 |
| May |
115 |
|
96,200 |
|
24,950 |
| June |
125 |
|
103,500 |
|
26,250 |
| July |
128 |
|
105,670 |
|
26,690 |
| August |
132 |
|
108,550 |
|
27,200 |
| September |
138 |
|
112,978 |
|
28,030 |
| October |
126 |
|
104,200 |
|
26,400 |
| November |
124 |
|
102,750 |
|
26,150 |
| December |
108 |
|
91,050 |
|
23,990 |
| Total |
1,421 |
|
$1,183,965 |
|
$304,645 |
| Average cost per unit |
|
|
|
$ 833.19141 |
|
$ 214.38776 |
Required:
Q1. Use the high-low method to identify the fixed and variable cost components for both production costs and selling and administrative costs.
Q2. The company estimates that production and sales in 2011 will be 1,550 units. Based on this estimate, forecast income before taxes for 2011.