Answer:
Given y = cost
X = units
Y = a+bx
a = fixed cost
b = dy/dx = Vc/unit
bx =Vc
Using high and low method of cost segregation; the total of this function can be identified
Cost(y) Units
High. 12,000. 254,000
Low. (5,000). (170,000)
dy: 7,000. dx:
84,000
Given ; TC = y = a+bx
Where y = amount spent on adverts
a = fixed cost elements
x = Sales revenue
b = variable and per unit
b = dy/dx =Vc/units
b = dy/dx
Given dy = 7,000
dx= 84,000
b = dy/dx = 7,000/84,000 =0.083
Checking for constancy of fixed asset.
At x = 254,000
y = a + 0.083(254,000)
y = a + 21,082
But Y = 12,000
12,000 = a + 21,082
a = - 9082
At x = 170,000
y = a + 0.083(170,000)
5,000 = a + 14,110
a = - 9110
a = - 9110 = - 9083 ( approximately)
Since a = fixed cost = approximately constant,
Y = a + 0.083x
Where a = - 9110
A. Y = -9110 + 0.083x
B. Find Revenue I.e x
When y = 10,000
Y = -9110 + 0.083x
10,000 = -9110 + 0.083x
10,000 + 9110= 0.083x
19,110 = 0.083x
x = 19,110/0.083
= $230, 240.96
C. The amount that should be spent on advertising to achieve $200,000 in revenue
Given ; y = a + bx
y = -9110 + 0.083x
y = -9110 + 0.083 (200,000)
y = -9110 + 16,600
y = $7,490
