Question

The controller of Joy Co has requested a quick estimate of the manufacturing supplies needed for the Morton Plant for the month of July, when production is expected to be 470,000 units to meet the ending inventory requirements and sales of 475,000 units. Joy Co's budget analyst has the following actual data for the last three months. Using the high-low method to develop a cost estimating equation, the estimate of the needed manufacturing supplies for July would be____________.

Answer 1

Answer:

$752,060

Explanation:

Using the high-low method, the estimated of the manufacturing supplies needed is shown below:

As we know that

Total Cost = Fixed Cost + Variable Cost

So for this, first we have to compute the variable cost and then the fixed cost that are shown below:

Variable cost per unit = (High total cost - low total cost) ÷ (High units - low units)

= ($853,560 - $723,060) ÷ (540,000 units - 450,000 units)

= $130,500 ÷ 90,000 units

= $1.45 per unit

Now the fixed cost equal to

= High total cost - (High units × Variable cost per unit)

= $853,560 - (540,000 units × $1.45)

= $853,560 - $783,000

= $70,560

Now the manufacturing supplies estimated would be

= Fixed cost + expected units × variable cost per unit

= $70,560 + 470,000 × 1.45

= $70,560 + $681,500

= $752,060