The manufacturing costs of Sign Enterprises for the first three months of the ye

Question

The manufacturing costs of Sign Enterprises for the first three months of the year are provided below. (Worth 4 points)

                                     Total Costs                           Production

January                         $150,000                           1,500 units   

February                          200,000                                 2,500

March                              180,000                                 2,000

Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost.

Answer:

Explanation / Answer

1. Variable Cost = Y2 - Y1 / X2-X1

Y2 = 200,000 , Y1 = 150,000 , X1 = 1,500, X2 = 2,500

SO the Variable Cost as per the above formula is 250,000 - 150,000 / 2,500 - 1,500 = $50 per unit.

2. Fixed Cost = Y2 - bX2 = Y1 - bX1

Y2 = 200,000 , Y1 = 150,000 , bX1 = 50*1,500, X2 = 50*2,500

SO the Variable Cost as per the above formula is 200,000 - (50*2500) = 150,000 - (50*1500) ====

Total Fixed Cost 75,000

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