Question

X Company has the following data from 2016 and 2017: 2016    2017    Total costs $216,360 $356,860...

X Company has the following data from 2016 and 2017:

2016    2017   
Total costs $216,360 $356,860
Units produced 28,000 53,000


Expected production in 2018 is 44,600 units. Using the high-low method with the 2016 and 2017 data to determine the parameters of the cost function, what are estimated total costs in 2018?

Business   Accounting   
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Answer #1
Cost at highest level of activity            3,56,860.00
Cost at Lowest level of activity            2,16,360.00
Highest level of activity               53,000.00
Lowest Level of activity               28,000.00
Variable cost per unit = (356860-216360)/(53000-28000)
Variable cost per unit = 140500/25000
Variable cost per unit = $562
Fixed Costs= 356860-53000*5.62
Fixed Costs = $59000
cost for 2018 = Fixed cost + units*variable cost per unit
                      = 59000+(44600*5.62)
cost for 2018 = $309652
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