Problem 4.3 ( LO1, 2 ) High-Low, Break-Even Lancer Audio produces a high-end AV receiver that sells for $1,300. Total operating expenses for the past 12 months are as follows:
| Units Produced and Sold | Cost | |
| August | 165 | $140,345 |
| September | 130 | 116,990 |
| October | 150 | 130,650 |
| November | 145 | 127,670 |
| December | 155 | 133,790 |
| January | 170 | 143,910 |
| February | 140 | 123,520 |
| March | 150 | 130,950 |
| April | 145 | 127,385 |
| May | 150 | 129,865 |
| June | 140 | 122,720 |
| July | 135 | 120,255 |
Required
1. Use the high-low method to estimate fixed and variable costs.
2. Based on these estimates, calculate the break-even level of sales in units. (Round to the nearest whole unit.)
3. Calculate the margin of safety for the coming August assuming estimated sales of 175 units.
4. Estimate total profit assuming production and sales of 175 units.
5. Comment on the limitations of the high-low method in estimating costs for Lancer Audio.
