Lancer Audio produces a high-end DVD player that sells for $1,300. Total operating expenses for the past 12 months are as follows
-------------------------------------Units Produced ------ Sold Cost
August ------------------------------------130------------- $116,990
September ------------------------------150 ---------------130,650
October---------------------------------- 155 ---------------133,790
November -------------------------------165 --------------- 140,345
December------------------------------- 170 ----------------143,910
January --------------------------------- 145 --------------- 127,670
February -------------------------------- 150 ----------------- 129,865
March -------------------------------------140----------------- 122,720
April ---------------------------------------135---------------- 120,255
May ---------------------------------------140 ----------------- 123,520
June -------------------------------------- 150 ----------------- 130,950
July ----------------------------------------145 ---------------- 127,385
Required
a.Use the high-low method to estimate fixed and variable costs.
b.Based on these estimates, calculate the break-even level of sales in units. (Round to the nearest whole unit.)
c.Calculate the margin of safety for the coming August assuming estimated sales of 165 units.
d.Estimate total profit assuming production and sales of 165 units.
e.Comment on the limitations of the high-low method in estimating costs for Lancer Audio.