assignment

Problem 4.3 ( LO1,   2 ) High-Low, Break-Even Lancer Audio produces a high-end AV receiver that sells for $1,300. Total operating expenses for the past 12 months are as follows:

	Units Produced and Sold	Cost
August	165	$140,345
September	130	116,990
October	150	130,650
November	145	127,670
December	155	133,790
January	170	143,910
February	140	123,520
March	150	130,950
April	145	127,385
May	150	129,865
June	140	122,720
July	135	120,255

Required

1. Use the high-low method to estimate fixed and variable costs.

2. Based on these estimates, calculate the break-even level of sales in units. (Round to the nearest whole unit.)

3. Calculate the margin of safety for the coming August assuming estimated sales of 175 units.

4. Estimate total profit assuming production and sales of 175 units.

5. Comment on the limitations of the high-low method in estimating costs for Lancer Audio.