Shatner Inc. has decided to use the high-low method to estimate the total cost a

Question

Shatner Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

Units Produced Total Costs
4,100 $478,680
1,980 435,600
6,380 677,600

a. Determine the variable cost per unit and the total fixed cost.

Variable cost: (Round to the nearest dollar.) $ per unit
Total fixed cost: $

b. Based on part (a), estimate the total cost for 3,010 units of production.

Total cost for 3,010 units: $

Explanation / Answer

a. Determine the variable cost per unit and the fixed cost. Variable cost per unit = Difference in total costs / Difference in Production ($677600 - 478680) / ( 6380 - 4100) = $87.245 per units Total cost = (Variable cost per unit x Units of Production) + Fixed cost Highest level: ($87.245 x 6380) + Fixed cost = $677600 $556623 + Fixed cost = $677600 Fixed cost = $120977 Lowest level: ($87.245 x 4100) + Fixed cost = 478680 $357704 + Fixed cost = $478680 Fixed cost = $120976 ( Diff of $ 1 is due to approximation) b. Based on part (a), estimate the total cost for 3010 units of production. Total Cost = (Variable Cost per Unit × Units of Production) + Fixed Cost Variable cost Units 3010 Variable cost per unit $87.245 Total variable cost $262607 Fixed cost 120977 Total cost $383584

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