Question

tom has the following information for the last 4 months

month.   units.     total costs

sept.      7,000.    $100,300
oct.        8,000.    $100,700
nov.        6,000.    $105,700
dec.       7,500.     $103,200

using the high/low method, estimate total cost at 7,700 units

estimated total costs_______

Answer 1

Under high-low point method,

(a)
Variable cost per unit = (highest activity cost - lowest activity cost)/(highest activity units - lowest activity units)
= ($100700 - $105700)/(8000 - 6000)
= -$2.5 per machine hour

(It is a negative variable cost per unit)

(b)

to get the total fixed cost, let's take e.g. data for November

Total fixed cost = total cost - (units produced x variable cost per unit)
= $105700 - {6000 x (-$2.5)}
= $120700

(c)

therefore, for 7700 units:

estimated total costs = total fixed costs + total variable costs

= $120700 + {7700 x (-$2.5)}

= $101450