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Question 4 Cruise Ltd needs to analyse the total cost of production into their fixed...

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Question 4 Cruise Ltd needs to analyse the total cost of production into their fixed and variable costs. The production levels and the total costs of production for the four months from last January to April have been recorded and are as follows: Month January February March April Output (units) 5,000 4,500 6,000 5,500 Total cost of production () 160,000 150,000 180,000 170,000 REQUIRED: (a) Estimate fixed and variable elements of the costs of production from the above data by both of the following methods: (0) High and low points; (2 marks) (ii) Using the Least-Squares method equations: Ey = na + b2x xy = x + bx2 (6 marks) For both (a) (i) and (ii) above, round the variable cost per unit to 1 decimal place. (b) Estimate the total production cost when the output is 6,500 units and comment on the validity of making such an estimate. (4 marks) (c) Discuss the advantages and disadvantages of both the engineering approach and the accou analysis/inspection approach to cost estimation. (8 marks) (Total 20 marks)

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