Question

The shipping expenses (first figure in $) and the associated units sold (second figure) over the last six months follow:

Oct 2019: $22,800, 290

Nov 2019: $24,850, 330

Dec 2019: $28,000, 390

Jan 2020: $22,000, 300

Feb 2020: $27,200, 400

Mar 2020: $25,200, 350

Using High-Low method, what is the estimated shipping expense in the nearest ten dollars when 360 units are sold? Take two decimal places in intermediate steps.

Answer 1

Highest units produced:

Feb 2020, 400 units at total cost of $27,200

Lowest units produced:

Oct 2020, 290 units at total cost of $22,800

Variable cost of shipping per unit =

Change in total cost / change in units

=(27200-22800)/(400-290)

= 4400/110

= $ 40 per unit

Fixed cost of shipping =

Total cost - variable cost

(For both lowest and highest units, fixed cost will be same)

[27200-(400*40)] = [22800-(290*40)]

= $11,200

Cost for 360 units sold

= Fixed cost + (units sold * variable cost)

= 11200 + (360*40)

= 11200 + 14400

= $25,600