### Educational Resource: Scatter Diagrams and High-Low Cost Estimation**Context**: From April 1 through October 31, the Coles County Highway Department engages temporary workers to mow and clean the right-of-way along county roads. The County Road Commissioner has requested assistance in determining the variable labor cost of mowing and cleaning one mile of road. The data below reflects current-year operations.#### Data Table| Month | Miles Mowed and Cleaned | Labor Costs ||-----------|-------------------------|-------------|| April | 240 | $6,800 || May | 305 | $7,680 || June | 325 | $8,310 || July | 275 | $7,200 || August | 220 | $6,550 || September | 200 | $5,760 || October | 75 | $4,960 |#### Required Analysisa. **Cost-Estimating Equation**: - Use data from the highest and lowest volume months to develop a cost-estimating equation for monthly labor costs.b. **Scatter Diagram and High-Low Method**: - Plot the above data on a scatter diagram. - Use the representative high and low-volume months to develop a cost-estimating equation for monthly labor costs using the high-low method.c. **Factors for Equation Variation**: - Discuss potential factors that could have caused differences between the equations developed in requirements (a) and (b).d. **Adjustment for Wage Increase**: - Modify the equation from requirement (b) to include the impact of an anticipated 5% wage increase. This exercise will enhance understanding of cost estimation through scatter diagrams and the high-low method, focusing on real-world application in highway maintenance operations.

High-low method: In determining cost equation consisting of variable and fixed costs, the highest and lowest volumes and corresponding expenses are considered. Using the below formula, variable costs are determined: Variable cost=Highest Activity Cost - Lowest Activity CostHighest Activity Units - Lowest Activity Unitsa. Working note: Calculation of variable cost per unit of activity: Variable cost=Highest Activity Cost - Lowest Activity CostHighest Activity Units - Lowest Activity Units=$8,310-$4,960325-75=$3,350250=$13.4 per mile mowed and cleaned Calculation of fixed cost per month: Total Cost = Variable Cost + Fixed Cost$8,310 = Fixed Cost + 325 × $13.4Fixed cost = $8,310 - $4,355=$3,955 Therefore, the cost equation is: Total cost = ax+b => $13.4x + $3,955 b. Preparation of scatter diagram: Both the cost equations are same and there is no difference in calculating the total costs of total variable costs.c. Since there is no difference in the equations developed, no factors are causing the difference.

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Scatter Diagrams and High-Low Cost Estimation From April 1 through October 31, Coles County Highway Department hires temporary employ- ees to mow and clean the right-of-way along county roads. The County Road Commissioner has asked you to help her in determining the variable labor cost of mowing and cleaning a mile of road. The following information is available regarding current-year operations: Miles Mowed and Cleaned Labor or, Activity Analysis, anu vu.- Costs 240 $6,800 305 7,680 8,310 Month 325 April May. 275 7,200 220 6,550 5,760 4,960 June 200 July. August September October.. 75 Use the information from the high- and low-volume months to develop a equation for monthly labor costs. b. Plot the data on a scatter diagram. Using the information from representative high- and low- volume months, use the high-low method to develop a cost-estimating equation for monthly labor costs. cost-estimating REQUIRED a. balim oi uode What factors might have caused the difference in the equations developed for requirements () and (b)? - Adjust the equation developed in requirement (b) to incorporate the effect of an anticipalc 5% increase in wages.

Scatter Diagrams and High-Low Cost Estimation From April 1 through October 31, Coles County Highway Department hires temporary employ- ees to mow and clean the right-of-way along county roads. The County Road Commissioner has asked you to help her in determining the variable labor cost of mowing and cleaning a mile of road. The following information is available regarding current-year operations: Miles Mowed and Cleaned Labor or, Activity Analysis, anu vu.- Costs 240 $6,800 305 7,680 8,310 Month 325 April May. 275 7,200 220 6,550 5,760 4,960 June 200 July. August September October.. 75 Use the information from the high- and low-volume months to develop a equation for monthly labor costs. b. Plot the data on a scatter diagram. Using the information from representative high- and low- volume months, use the high-low method to develop a cost-estimating equation for monthly labor costs. cost-estimating REQUIRED a. balim oi uode What factors might have caused the difference in the equations developed for requirements () and (b)? - Adjust the equation developed in requirement (b) to incorporate the effect of an anticipalc 5% increase in wages.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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