Is there evidence to suggest that the process described above was being employed by Motomart?.
Identify the high and low measures in each column, just as you would in preparation for application of the high-low method or technique. For example, in Table 4 the high measure for the cost driver (NRVS) is 280 NRVS in month 13 and the low measure is 31 NRVS in month 12. Repeat this process for each of the eight separate semi-fixed expense columns and also for the total expense column. (You could transfer the figures to Excel to use the maximum and minimum functions to assist you in identifying the high and low measures [N=60] for each of the ten columns.) After the high and low measures have been identified in each column, try to match each expense columns high and low measure, separately, to the highs and lows identified in the NRVS column. They wont match. Dont try to correct the data, but comment on the potential for application of the high-low technique. What happens when the high and low activity level doesnt match the high and low expense measure? Does this prevent you from correctly applying the high-low technique? Dont overanalyze this data, because theres a problem with it and you dont have sufficient information to correct it. Merely summarize your observations and unsuccessful attempts to match the high and low NRVS months (identified above), separately, with each of the high and low expense measure months. You should be able to do this in a very few well written sentences. Finally, summarize your findings with respect to the application of the high-low method to separate mixed costs into their fixed and variable components or the development of a cost equation.
Step 4
Use Table 6 to compute the cost equations and R-squared measures for each of the remaining eight expenses and total expenses. Notice that theres a computed total requirement in the table. This just means that you must total these two columns and compare the computed totals to the Excel generated measures in the row below. In effect, youre being asked to comment on whether the separate cost formulas are “additive.” Complete the cost equations for the table. Use the R-squared as the single measure of “goodness of fit.” Dont attempt to improve your results with the elimination of “outliers” or “influential outliers.” As you complete Table 6, answer the following questions: 1. What problems did you encounter? 2. Are the R-squared measures high or low? 3. Are the slopes negative or positive? 4. Are your conclusions consistent with those from the high-low effort?
Step 5
Summarize your findings on a single page (250 words or less, double-spaced). Can the Motomart data be used to prepare a reliable financial forecast? Why or why not? If Motomart is included in the very large database used to prepare the financial forecast that supports the relocation of Motomart closer to Existing Dealer, what concerns might present themselves with respect to the remainder of the database used for this forecast? Would you rely on this forecast? Its common for businesses to keep poor financial records most of the year, because many are trying to reduce the cost of financial record keeping (e.g., the salary of a CPA is higher than that of a bookkeeper). Then, at the years end, these businesses employ a CPA or accounting firm to make adjusting journal entries to correct data for the twelfth months of the year, only to reverse the adjusting journal entries immediately after the annual financials are prepared. Examine your graphics to identify any seasonal (12-month) patterns. Do any exist? Is there evidence to suggest that the process described above was being employed by Motomart?
Is there evidence to suggest that the process described above was being employed by Motomart?
