Pacheco Corp provides the following information for its ship

Pacheco Corp. provides the following information for its shipping costs: units Cost of shipped shipping 5000 $7450 February 4500 $6725 6500 $9625 3200 $4840 4400 $6580 5500 $8175 January March April May June a) Use the High-low method to calculate the cost formula (y-a+ b(x) (6 marks) b) Pacheco Corp. estim ates shipping 3,300 units in July. Use the cost formula from (a) to calculate the total shipping costs in July. (7 marks)

Solution

Units Cost High-March 6500 9625 Low-April 3200 4840 Change 3300 4785 Variabble cost per unit: Change in Cost/ Change in units 4785 /3300 = 1.45 per unit Fixed c ost: Total c ost 9625 Less: variable cost (6500*1.45) 9425 Fixed cost 200 Cost formula = 200 + 1.45X Total cost for 3300 units Total cost = 200+ 3300*1.45 = 4985