QUESTION 10 method, what are the fixed and variable costs if the high sales reve
ID: 2391268 • Letter: Q
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QUESTION 10 method, what are the fixed and variable costs if the high sales revenue is $160,000 with total costs of $ 96.000 with total costs of $58,000. What is the fixed cost and the variable per dollar of salesr $9,750 fixed and 32.5% per dollar of sales revenue O $10,000 fixed and 50% per dollar of sales revenue O $6,750 fixed and 32.5% per dollar of sales revenue S4.240 fixed and 56% per dollar of sales revenue Click Save and Submit to save and submit. Click Save All Save All Answers 0 Type here to search 19 10 f7Explanation / Answer
Given data:
High sales revenue is $160,000 with total cost of $90,000, and Low sales revenue is $96,000 with total cost of $ 58,000.
But here units produced not given.
Assume at sales of $ 160,000 is 100 units and $ 96,000 is 60 units.
High-Low method is one of the several techniques used to split a mixed cost into its fixed and variable components. These figures are then used to calculate the approximate variable cost per unit (b) and total fixed cost (a) to obtain a cost volume formula:
y = a + bx
High-Low Method Formulas:
Variable Cost per Unit:
Variable cost per unit (b) is calculated using the following formula:
Variable Cost per Unit= y2 ? y1
x2 ? x1
Where,
y2 is the total cost at highest level of activity;
y1 is the total cost at lowest level of activity;
x2 are the number of units/labor hours etc. at highest level of activity; and
x1 are the number of units/labor hours etc. at lowest level of activity
The variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of units produced).
The volume and the corresponding total cost information of the factory for past four months are given below:
Level
Units
Cost
At 100 %
100
$ 90,000
At 60%
60
$ 58,000
Solution:
We have,
at highest activity: x2 = 100; y2 = $ 90,000
at lowest activity: x1 = 60; y1 = $ 58,000
Variable Cost per Unit = ($ 90,000 ? $ 58,000) ÷ (100 ?60) = $ 800 per unit
Total Fixed Cost:
Total fixed cost(a) is calculated by substracting total varible cost from total cost, thus:
Total fixed cost = y2 ? bx2 = y1 ? bx1
Total Fixed Cost = $90,000 ? ($800 × 100) = $10,000
= $58,000 ? ($800 × 60) = $10,000
Final Answer: $ 10,000 fixed and 50% per dollar of sales revenue
Level
Units
Cost
At 100 %
100
$ 90,000
At 60%
60
$ 58,000
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