Product sells for $1,250. Total operating costs are as follows: Units Produced &

Question

Product sells for $1,250. Total operating costs are as follows:
Units Produced & Sold Costs
August 125 $112,670
September 145 $121,990
October 150 $129,500
November 160 131,500
December 165 139,700
January 140 117,400
February 145 125,600
March 135 115,400
April 130 116,140
May 135 119,220
June 145 121,700
July 140 119,050

Required: Use the high-low method to estimate fixed and variable costs. Based on these estimates, calculate the breakeven level of sales in the units. Calculate the margin of safety for the coming August assuming estimated sales of 160. Estimate total profit assuming production and sales of 160 units. Comment on the limitations of the high-low method in estimating costs.

Explanation / Answer

December 165 $139,700 August 125 $112,670 Difference 40 $ 26,670 So, Variable Cost is: 26,670/40 = 653.25

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