REQUIRED: Classify each cost as fixed, variable, or mixed using the consulting hours as the activity driver. Identify the cost formula using the high-low method to separate the mixed costs into their fixed and variable components. (Round the variable rates to two decimal places and fixed amounts to the nearest ringgit.) Ramesh estimated that the community service will average 280 consulting hours per month. Compute the charge per consulting hour if the community service is to be operated as a nonprofit organization.
Ramesh & Associates is a successful legal firm operating in Alor Setar. In appreciation for their success journey, the founders were thinking of giving something back to the community. One of the founders, Mr. Ramesh believes that inexpensive legal consultation services could be very helpful for all businesses or individuals who reside within the city. He would like to charge for the services at cost.
Since this community service is something new to them, thus as a starting point they agree to offer an hourly charge of RM50, which is half of the normal commercial rate. Initially, they try to operate the community service for 2 months to collect the data in order to determine the appropriate charge on an ongoing basis.
They have collected the data for the first two months of October and November. During October they had 240 hours of legal consulting service and 300 hours for November. The costs for these two levels of activity usage are as follows:
|
|
Types of cost |
240 Consulting Hours |
300 Consulting Hours |
|
|
|
(RM) |
(RM) |
|
|
|
|
|
|
|
Internet & Applications subscriptions |
1,400 |
1,500 |
|
|
Supplies |
1,300 |
1,550 |
|
|
Salaries of senior attorney |
3,500 |
3,500 |
|
|
Salaries of office assistant |
1,700 |
1,700 |
|
|
Consulting by senior attorney |
1,200 |
1,500 |
|
|
Administration |
450 |
450 |
|
|
Utilities |
720 |
800 |
|
|
|
1,900 |
1,900 |
|
|
|
|
|
REQUIRED:
- Classify each cost as fixed, variable, or mixed using the consulting hours as the activity driver.
- Identify the cost formula using the high-low method to separate the mixed costs into their fixed and variable components. (Round the variable rates to two decimal places and fixed amounts to the nearest ringgit.)
- Ramesh estimated that the community service will average 280 consulting hours per month. Compute the charge per consulting hour if the community service is to be operated as a nonprofit organization.
- Based on the answer in (3) above, compute the charge per hour for variable portion and the charge per hour for fixed portion.
- Assuming that the consulting hour averages 340 hours per month, compute the charge per hour for the firm to cover its costs and explain why the charge increased/decreased as the activity output increased.
- Provide TWO (2)differences between the high-low and least squares methods.
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