Question

Frazier Manufacturing Company collected the following production data for the past month:

units

Units Produced total costs

4,000 $26,000

4,500 29,125

4,800 31,000

5,500 35,375

If the high-low method is used, what is the monthly total cost equation?

A. Total cost= $9,00 + $6/unit

B. total cost=$1,000 + $6/unit

C. total cost = 9,375 +$6.50/unit

D. Total cost= 1,000+$6.25/unit

Answer 1

Variable cost per unit can be calculated as follows:

Change in total cost / Change in number of units

Taking 4,500 and 4,800 units and substituting the values in the above formula,

Variable cost per unit = ($31,000 - $29,125) / (4,800 - 4,500 units)

=> Variable cost per unit = $6.25

Now, Total cost @ 4,500 units is $29,125.

The variable cost for 4,500 units is 4,500 units x $6.25 per unit = $28,125

Therefore, the fixed cost is $1,000 (Total cost - Variable cost).

Therefore, the monthly total cost equation is $1,000 + $6.25 per unit.

Therefore, the correct option is option D.