![Jacket](/sites/dl/free/0077098595/title/sgn_ma_sm.jpg) Management Accounting Willie Seal,
University of Essex, UK Ray Garrison,
Brigham Young University, Provo, Utah, USA Eric Noreen,
INSEAD, France
Cost Behaviour: Analysis and Use
Internet Exerciseswww: IE5-27 Estimating Variable and Fixed Costs Carnival Corporation
owns and operates a fleet of cruise ships. The company measures its activity
in terms of passenger cruise-days. For example, a family of four on a five-day
cruise is counted as 20 passenger cruise-days. Many of the expenses of cruise
ships-for example, the costs of food served to passengers vary with the number
of passenger cruise-days. By accessing Carnival Corporation's annual report
in the Investor Relations section of their web site www.carnivalcorp.com, you can find information
about their expenses and passenger cruise-days for the last three years. Operating
Expenses, Selling and Administrative Expenses, and Depreciation and Amortization
Expenses are listed in the company's income statement. The passenger cruise-days
are listed in the section of the annual report called Management's Discussion
and Analysis of Financial Condition and Results of Operations. - For each of the three categories of expenses listed above,
do the following:
- Plot the expense against passenger cruise-days.
- Using the scattergraph method, estimate the fixed and variable
components of the expense. Do you have much confidence in your estimates?
Why or why not?
- Using the high—low method, estimate the fixed and variable
components of the expense. Do you have much confidence in this estimate? Why
or why not?
- Use what you believe to be the best estimates of fixed and
variable costs from your analyses above to estimate how the total cost of
the company varies with the number of passenger cruise-days. Express the relation
in terms of the cost formula Y= a + bX, where Y is total cost and X is passenger
cruise-days. (Ignore interest expense and income tax expense. Only include
Operating Expenses, Selling and Administrative, and Depreciation and Amortization
in the total cost.)
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