Question

Ivanhoe Corp. has collected the following data concerning its maintenance costs for the past 6 months.

		Units Produced				Total Cost
July			18,700				$39,712
August			33,344				50,016
September			37,512				57,310
October			22,924				40,126
November			41,680				77,629
December			39,596				64,604

Part 1

Compute the variable cost per unit using the high-low method. (Round answer to 2 decimal places, e.g. 2.25.)

Variable cost per unit

$enter the variable cost per unit in dollars rounded to 2 decimal places

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Part 2

Compute the fixed cost elements using the high-low method.

Fixed costs

$enter the fixed costs in dollars

Answer 1

Part 1

Highest activity cost = $77,629

Lowest activity cost = $39,712

Highest activity = 41,680

Lowest activity = 18,700

Variable cost per unit = (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)

= (77,629-39,712)/(41,680-18,700)

= 37,917/22,980

= $1.65 per unit

Variable cost per unit

$1.65

Part 2

Fixed cost = Highest activity cost - Highest activity x Variable cost per unit

= 77,629- 41,680 x 1.65

= 77,629-68,772

= $8,857

Fixed costs

$8,857

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