Exhibit 5-2
Manchester Company is a small company that has hired you to help them estimate costs.They present you with the following information from the company's most recent fiscal year.
Sales (2,000 units)$1,000,000
Cost of goods sold (24% of sales)240,000
Store supervisor's annual salary 65,000
Annual operating costs 70,000
Annual advertising and promotion 10,000
Sales commissions (5% of sales)50,000
-Refer to Exhibit 5-2.What type of cost estimation method is being used for Manchester?
A)Regression analysis
B)Scattergraph method
C)Account analysis
D)High-low method
E)None of the answer choices is correct.

Question

Quizplus · Accepted Answer

The information provided by Manchester Company is being analyzed using account analysis, which involves breaking down various costs by identifying and analyzing their underlying factors. In this case, the known costs have been itemized and classified into categories (such as the cost of goods sold, the supervisor's salary, and operating costs), with each cost categorized based on its underlying factors. This method helps to identify which factors are driving the costs and to predict future costs based on changes in these underlying factors.

Exhibit 5-2 Manchester Company Is a Small Company That Has Hired You