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The following data for units shipped (X) and Y (shipping cost) has been observed over the last 6 weeks: Week X Y 1 1 2
The following data for units shipped (X) and Y (shipping cost) has been observed over the last 6 weeks: Week X Y 1 1 2. 4 €18 2 17 3 8 3 25 4 5 6 20 5 7 24 6 2. 16 For planning purposes, management would like to know the amount of variable cost of shipping a unit (b) and total fixed shipping cost per week (a). Required Using the High low method, estimate the variable cost of shipping a unit (b) and total fixed shipping cost per week (a) AND express the cost data in the form of Y=a +bx
Expert Solution
ariable cost per unit = (Cost per highest activity level - Cost per lowest activity level) / (Highest activity level units - Lowest activity level units)
= ( (25-16)/ (8-2)
= 1.5 per unit
Total cost = Variable cost * No of units shipped + Fixed costs
Taking the highest units shipped to estimate fixed costs
25= 8*1.5+ Fixed costs
Fixed cost = 13
Cost data = 13 + 1.5x
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