Question

You have taken over a the maintenance department in an existing business and you are asked to determine how much you should budget for the 2021 budget year if you are expected to process 475,000 work orders. Your only reference is historical financial data for the past 12 months as follows.   

Months	Workorders	Total Costs
January	330,000	$         167,000
February	165,000	110,000
March	280,000	225,000
April	225,000	105,000
May	325,000	230,000
June	210,000	120,000
July	335,000	220,000
August	285,000	160,000
September	87,000	68,000
October	162,000	147,000
November	105,000	105,000
December	115,000	87,000
Total Units	2,624,000	$      1,744,000

1) Determine the variable cost per unit

2) Determine the total Fixed costs

3. How much should you budget for 2021 if it is expected that you will process 475,000 work orders.

Answer 1

Computation of Variable Cost per Unit as per High Low Method

Variable cost per Unit = (Cost at Highest Volume Activity - Cost at Lowest Volume Activtiy)/ (Highest Volume Activity - Lowest Volume Activity )

=(220000-68000)/(335000-87000)= $0.613 per Unit

Hence , Variabe cost per unit   will be $0.613 per Unit

Part-2

Fixed Cost : Total Cost - Variable cost

: 220000- (335000X0.613)=$14645

Part-3

Total Cost= 0.613 X + $14645

For 475000 Unit= (0.613*475000)+14645= $305820