Assume the local Pearle Vision has the following information on the number of sales orders received and order-processing costs. Month Sales Orders Order Processing Costs 1 3,300 $90,970 2 1,650 55,412 3 4,840 132,770

Assume the local Pearle Vision has the following information on the number of sales orders received and order-processing costs. Month Sales Orders Order Processing Costs 1 3,300 $90,970 2 1,650 55,412 3 4,840 132,770

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter12: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 12.16E: Product cost concept of product pricing Based on the data presented in Exercise 12-15, assume that...

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Question

E15-19. Scatter Diagrams and High-Low Cost Estimation

Assume the local Pearle Vision has the following information on the number of sales orders received and order-processing costs.

Month	Sales Orders	Order Processing Costs
1	3,300	$90,970
2	1,650	55,412
3	4,840	132,770
4	3,080	90,090
5	2,530	76,752
6	1,320	47,410
7	2,200	68,750

Required

a. Use information from the high- and low-volume months to develop a cost-estimating equation for monthly order-processing costs.

b. Plot the data on a scatter diagram. Using the information from representative high- and low-volume months, develop a cost-estimating equation for monthly production costs.

c. What factors might have caused the difference in the equations developed for requirements (a) and (b)?

Definition Definition Operation costing method employed to determine the value of a product at each process or stage of the production process, applicable where goods produced from a series of continuous operations or procedure. Process costing is employed by businesses that manufacture goods and where production is in repetitive inflow.

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Step 1: High-low method:

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Step 2: (a) Develop a cost-estimating equation for monthly order-processing costs using high-low method:

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Step 3: (b) Plot the data on a scatter diagram:

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Step 4: Develop a cost-estimating equation for monthly production costs using high-low method:

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Step 5: (c) List the factors might have caused the difference in the equations developed in (a) and (b):

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