Question

Perez Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During year 2, the high point in activity occurred in June when it produced 207 boats at a total cost of $157,550. The low point in production occurred in January when it produced 40 boats at a total cost of $49,000. Required Use the high-low method to estimate the amount of fixed cost incurred each month by Perez Boat Company. Determine the total estimated cost if 110 boats are made.

Answer 1

Answer:

Fixed cost is $23000

The total costs of producing 110 boats is $94500

Step-by-step explanation:

In using the high-low method,we first of all determine variable cost per unit which is =total cost at highest level-total cost at lowest level/quantity at highest level-quantity at lowest level

Variable cost=(157,550-49000)/(207-40)

Variable cost=$650/unit

Substituting variable cost at highest activity level

Total cost=fixed cost+(variable cost/unit*quantity)

157,550=fixed cost+(650*207)

157550=fixed cost +134550

fixed cost=157550-134550

fixed cost=$23000

Total costs of 110 boats is estimated as:

total costs=23000+(110*650)

Total costs when 110 boats were made is $94500