Question

High-Low Method

Ziegler 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
6,970			$723,240
2,870			464,940
4,620			629,740

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 3,540 units of production.

Total cost for 3,540 units:

$

Answer 1

Answer :

a. The variable cost per unit and the total fixed cost :

Variable cost per unit

= (Highest Total Costs - Lowest Total Costs) / (Highest Units Produced - Lowest Units Produced)

= ($723,240 - $464,940) / (6,970 units - 2,870 units)

= $258,300 / 4,100 units

= $63

Fixed cost

= Highest Total Costs - (Variable cost per unit x Highest Units Produced)

= $723,240 - ($63 x 6,970 units)

= $723,240 - $439,110

= $284,130

b. Calculation of the total cost for 3,540 units of production :

Total cost = Variable cost + Fixed cost

= (3,540 units x $63) + $284,130

= $223,020 + $284,130

= $507,150