(Appendix 6A)The Accounting Department of Archer Company,a Merchandising Company,has Prepared

question 56

Essay

(Appendix 6A)The Accounting Department of Archer Company,a merchandising company,has prepared the following analysis:


The Accounting Department feels that billing expense is a mixed cost, containing both fixed and variable cost elements. A tabulation has been made of billing expense and sales in units over the last several months, as follows:

The Accounting Department now plans to develop a cost formula for billing expense so that a contribution-type income statement can be prepared for management's use.

Required:

a. Using the least-squares regression method and the equations for a and b, estimate the cost formula for billing expense.
b. Assume that the company plans to sell 30,000 units during July at a selling price of $100 per unit. Prepare a budgeted income statement for the month, using the contribution format.

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Definitions:

Weighted-Average Method

An inventory costing method that calculates the cost of ending inventory and the cost of goods sold based on the average cost of all units available for sale during the period.

Equivalent Units

A concept in cost accounting that converts partially completed goods into a number of completed units for inventory valuation.

Materials

Raw inputs or supplies that are converted into finished products through the manufacturing process.

FIFO Method

"First In, First Out", an inventory valuation method where the first items placed into inventory are the first sold, affecting the cost of goods sold and inventory value.