Question

Choco Co. provides DIY art frames and accessories. Choco Co. does not charge its customers for shipping charges on art frame orders and following is the shipping cost information for the last four months of 2016:

Month	Number of frames sold	Shipping costs
January	400	$10,000
February	500	$11,000
March	800	$12,000
April	600	$11,500

Using the high-low method, estimate Choco Co.’s total shipping costs if it sells 1,170frames in January, 2017.

Answer 1

		Units Sold	Shipping Cost
	High LEVEL	800	12000
	Low Level	400	10000
	Change	400	2000
Step 1	Change per unit (Variable cost) = Change in shipping cost / Change in Units
	=(2000/400)
	5
Step 2	Fixed Cost Portion calculation
	Variable Cost + Fixed cost = Total cost
	5 * 400 + Fixed Cost = 10000
	Fixed Cost = $8000
Step 3:	Calculation of shipping cost for 1170 Units
	Foxed Cost	8000
	Add: Variable cost	5850	(1170*5)
	Total cost for 1170 Units	13850