Question

Blue, Inc., produces amplifiers. Each unit sells for $900. Below is information on production/sales and costs for 2016: Production and Sales in Units Production Costs Selling and Admin. Costs January 105 $88,900 $23,500 February 118 97,200 25,400 March 97 83,200 22,700 April 107 89,900 23,400 May 114 96,700 25,200 June 124 103,100 26,300 July 127 106,300 26,900 August 133 107,600 27,100 September 138 113,417 28,194 October 126 105,200 26,300 November 124 102,400 26,000 December 108 90,800 24,000 Total 1,421 $1,184,717 $304,994 Average cost per unit $833.72062 $214.63336 Collapse question part (a) Use the high-low method to identify the fixed and variable cost components for both production costs and selling and administrative costs. Fixed cost Variable cost Production costs $ $ Selling and administrative costs $ $

Answer 1

Using high low method, Variable cost per unit = (Highest cost - lowest cost)/Difference in Units

Production cost varies with the number of units produced

and Selling and Administrative costs vary with the number of units sold

Production cost

Variable cost per unit = (113,417-83,200)/(138-97)

= $737 per unit

Fixed cost = Total cost - variable cost

= 113,417 - 138*737

= $11,711

Selling and Admin Cost

Variable cost per unit = (28,194-22,700)/41

= $134 per unit

Fixed cost = 28,194 - 138*134

= $9,702