Author Question: When preparing the trial balance, record the balances of the accounts in the order in which they ... (Read 58 times)

ahriuashd · **on:** Jul 6, 2018

When preparing the trial balance, record the balances of the accounts in the order in which they appear in the general ledger.
a. True
b. False
Indicate whether the statement is true or false

Question 2

Estimating a cost function, high-low method.

Laurie Daley is examining customer-service costs in the southern region of Capitol Products. Capitol Products has more than 200 separate electrical products that are sold with a 6-month guarantee of full repair or replacement with a new product. When a product is returned by a customer, a service report is prepared. This service report includes details of the problem and the time and cost of resolving the problem. Weekly data for the most recent 8-week period are as follows:

Required:
1. Plot the relationship between customer-service costs and number of service reports. Is the relationship economically plausible?
2. Use the high-low method to compute the cost function, relating customer-service costs to the number of service reports.
3. What variables, in addition to number of service reports, might be cost drivers of weekly customer-service costs of Capitol Products?

zoeyesther · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

True

Answer to Question 2

1. See Solution Exhibit 10- 23. There is a positive relationship between the number of service reports (a cost driver) and the customer-service department costs. This relationship is economically plausible.

2. Number of Customer-Service
Service Reports Department Costs
Highest observation of cost driver 455 21,500
Lowest observation of cost driver 115 13,000
Difference 340 8,500
Customer-service department costs = a + b (number of service reports)

Slope coefficient (b) = = 25 per service report
Constant (a) = 21,500 (25 455) = 10,125
= 13,000 (25 115) = 10,125

3. Other possible cost drivers of customer-service department costs are:
a. Number of products replaced with a new product (and the dollar value of the new products charged to the customer-service department).
b. Number of products repaired and the time and cost of repairs.

EXHIBIT 10- 23
Plot of Number of Service Reports versus Customer-Service Dept. Costs for Capitol Products