Question

Frazier Manufacturing Company collected the following production data for the past month: Units Produced Total Cost 1,600 $66,000 1,300 57,000 1,500 67,500 1,100 49,500 If the high-low method is used, what is the monthly total cost equation? a. Total cost = $9,900 + $36/unit b. Total cost = $16,500 + $30/unit c. Total cost = $0 + $45/unit d. Total cost = $13,200 + $33/unit

Answer 1

Answer:

d. Total cost = $13,200 + $33/unit

Explanation:

Variable cost per unit (x) is given by this following formula:

Variable cost per unit = a2-a1/b2-b1

Where,

a2 is the total cost at highest level of activity;

a1 is the total cost at lowest level of activity;

b2 are the number of units at highest level of activity;

b1 are the number of units at lowest level of activity.

then;

Total fixed cost (a) is given by subtracting total variable cost from total cost:

Total Fixed Cost = a2 – x*b2

                           = a1 – x*b1

We have,

at highest activity: b2 = 1600; a2 = $66000

at lowest activity: b1 = 1100; a1 = $49500

Variable Cost per unit = ($66000? $49500) ÷ (1600 units – 1100 units)                                         = $16500/500 units

                                     = $33 per unit

Total Fixed Cost = $33 per unit*1600 units

                            = $66000  

                             = $66000 – $52800

                            = $13200

Therefore, The Total cost is $13,200 + $33/unit.