Sandy socks makes the world\'s best socks. Information for the last 8 months as

Question

Sandy socks makes the world's best socks. Information for the last 8 months as follows.

Time remaining: 1:06:54 Sandy's Socks makes the world's best socks. Information for the last eight months follows Month January February March April May une July August Number of Socks Produced 4,100 4,500 3,700 5,650 6,250 5,000 4,850 6,500 Tota Cost 56,500 6,750 6,100 7,450 7,950 7,050 6,900 8,200 Using the high-low method, calculate the total fixed cost per month and the variable cost per sock. (Round your "Variable Cost per Unit" answer to 3 decimal places.) Variable Cost per Unit Fixed Cost

Explanation / Answer

Answer:- Variable Cost per unit=$0.75 per unit

Fixed costs=$3325

Explanation:-

High-Low Method:-

Variable cost per unit (x) is calculated using the following formula:

Variable cost per unit=a2-a1/b2-b1

Where,
a2 is the total cost at highest level of activity;
a1 is the total cost at lowest level of activity;
b2 are the number of units at highest level of activity; and
b1 are the number of units at lowest level of activity

Total Fixed Cost

Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:

Total Fixed Cost = a2 – x*b2 = a1 – x*b1

We have,
at highest activity: b2 = 6500; a2 = $8200
at lowest activity: b1 = 3700;   a1 =$6100

Variable Cost per unit = ($8200 $6100) ÷ (6500 units – 3700 units)  

                                     = $2100/2800 units =$0.75 per unit
Total Fixed Cost = $8200 ($0.75 *6500) = $8200 – $4875 =$3325

Variable cost per unit=a2-a1/b2-b1

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