PROBLEM1 Use the following normationto answer questions a. and b A company provi

Question

PROBLEM1 Use the following normationto answer questions a. and b A company provides the following information about the total amount of a mixed cost for each month along with the number of units produced in each month. Month January February March April May Cost S580,000 $660,000 $550,000 S720,000 $540,000 Units produced 50,000 60,000 45,000 65,000 46,000 a. Using the high-low method of cost estimation, what is the variable cost per unit? b. Using the high-low method of cost estimation, what is the fixed cost in total?

Explanation / Answer

Answer to Problem 1:

Answer a.

Highest units produced = 65,000
Highest Cost = $720,000

Lowest units produced = 45,000
Lowest Cost = $550,000

Variable Cost per unit = (Highest Cost - Lowest Cost) / (Highest units produced - Lowest units produced)
Variable Cost per unit = ($720,000 - $550,000) / (65,000 - 45,000)
Variable Cost per unit = $8.50

Answer b.

Fixed Costs = Highest Cost - Variable Cost per unit * Highest units produced
Fixed Costs = $720,000 - $8.50 * 65,000
Fixed Costs = $167,500

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