Shum Manufacturing, which uses the high-low method, makes a product called Kwan.

Question

Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,500 units and 8,000 units per month. Per-unit costs at two different activity levels for each cost type are presented below.

If Shum produces 8,000 units, the total cost would be:

Multiple Choice

$493,500.

$627,000.

$534,000.

$792,000.

None of the answers is correct.

Type A Type B Type C Total 5,000 units $ 18 $ 51 $ 18 $ 87 7,500 units 18 34 17 69

Explanation / Answer

Type A = Variable cost

TYpe B = FIxed cost

Type C = Mixed cost :

Variable cost per unit = 127500-90000/2500 = 15 per unit

FIxed cost = 127500-75000 = 15000

Total cost on 8000 Units = (33*8000+255000+15000) = $534000

So answer is c) $534000

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