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Speedy Pete’s is a small start-up company that delivers high-end coffee drinks to large metropolitan office buildings via a cutting-edge motorized coffee cart to compete with other premium coffee shops
Speedy Pete’s is a small start-up company that delivers high-end coffee drinks to large metropolitan office buildings via a cutting-edge motorized coffee cart to compete with other premium coffee shops. Data for the past 8 months were collected
Month Delivery Cost Number of Deliveries
May 63,450 1,800
June 67,120 2,010
July 66,990 2,175
August 68,020 2,200
September 73,400 2,550
October 72,850 2,630
November 75,450 2,800
December 73,300 2,725
(1) Which month represents the high point?
(2) Which month represents the low point?
(3) Using the high-low method, compute the variable rate.
(4) Using the high-low method, compute the fixed cost per month.
(5) Using your answers thus far, write the cost formula for delivery cost.
(6) Assume that 2,480 deliveries are budgeted for next month--using the high-low method formula you developed, forecast the amount of delivery cost for next month.
Expert Solution
| Month | Delivery cost($) | Number of Deliveries |
| May | 63,450 | 1,800 |
| June | 67,120 | 2,010 |
| July | 66,990 | 2,175 |
| August | 68,020 | 2,200 |
| September | 73,400 | 2,550 |
| October | 72,850 | 2,630 |
| November | 75,450 | 2,800 |
| December | 73,300 | 2,725 |
(1) November represents the High point
(2) May represents the Low point
(3)
As per High low Method
Variable Rate = (Highest activity cost - Lowest activity cost) / (Highest Activity units - Lowest activity units)
= ($75,450 - $63,450) / (2,800 - 1,800)
= $12,000 / 1,000
= $12
Therefore variable rate = $12 per delivery
(4)
As per High Low method
Fixed cost = Highest activity cost - (Variable rate x Highest activity units)
= $75,450 - ($12 x 2,800)
= $75,450 - $33,600
= $41,850
Therefore, Fixed cost is $41,850
(5)
Framing Cost formula
Cost = Fixed cost + (Variable rate x No of units)
Substituting
Delivery cost = $41,850 + ($12 x Number of deliveries)
(6)
Calculating Delivery cost at 2,480 deliveries
Delivery cost = $41,850 + ($12 x Number of deliveries)
= $41,850 + ($12 x 2,480)
= $41,850 + $29,760
= $71,610
$71,610 is the Delivery cost at 2,480 deliveries.
Thank you!!
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