# Use the high low method to estimate the fixed and variable components of its maintenance cost.

PART 1: The following information is available for GFI’s maintenance cost over the last seven months. Use the high low method to estimate the fixed and variable components of its maintenance cost. Would this be an effective way to estimate these costs? Justify your answer by explaining why this is an effective way or why it is not.

 Month Operating Hours Maintenance cost February 27 11,000 March 54 13,800 April 36 10,200 May 45 12,000 June 63 13,800 July 72 18,000 August 19 7,400

PART 2: In 2001, Ms. Kelle, the head of aerobic equipment sales, started a fitness magazine called the Dancing Elephant. The magazine sells 50,000 copies a month. The total variable costs at that volume are \$40,000 and fixed costs are \$20,000. An additional storage cost of \$2,000 will be incurred if production exceeds 55,000 units.

You have been asked to forecast the following costs for two possible production runs of (a) 52,000 units and (b) 57,000 units:

• Total variable costs
• Variable cost per unit
• Total fixed cost
• Fixed cost per unit
 Budget Forecast A Forecast B Production 50,000 52,000 57,000 Total variable costs Variable cost per unit Total fixed cost Fixed cost per unit

PART 3: GFI manufacturers ping pong tables and has a JIT policy that ending inventory must equal 10 percent of the next month’s sales. It is estimated that April’s actual ending inventory will consist of 40,000 ping pong tables. May and June sales are estimated to be 400,000 and 350,000 tables respectively. Compute the number of tables to be produced that would appear on GFI’s production budget for the month of May.

Good management includes good budgeting. Explain why the bottom-up approach to budgeting is considered a more successful management technique then a top down approach. Provide an example of implementation of the bottom-up approach to budgeting.

Submission:

The presentation must be submitted as a Microsoft Power Point presentation adhering to the instructions provided in the opening paragraph.

Use the following file naming convention: LastnameFirstInitial_M5_A1.ppt

By Monday, October 19, 2015, deliver your assignment to the M5: Assignment 1 Dropbox.

 Assignment 1 Grading Criteria Maximum Points Part 1: Used the high low method to estimate the fixed and variable components of its maintenance cost. 36 Part 1: Explained how this would be an effective way to estimate these costs. Justified answer by explaining why this is an effective way. 36 Part 2: Forecasted the following costs about which production run to use, based upon a production run of (a) 52,000 units and (b) 57,000 units: Total variable costs Variable cost per unit Total fixed cost Fixed cost per unit 32 Part 3: Computed the number of tables to be produced that would appear on GFI’s production budget for the month of May. 32 Part 3: Explained why the bottom up approach to budgeting is considered a more successful management technique then a top down approach. Provided an example of implementation of the bottom up approach to budgeting. 36 Part 4: Discussed and determined the costs relevant for the project. Stated whether this project is profitable based upon the information at hand. 36 Part 4: Showed your cost calculatio

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