Question

The manufacturing costs of Calico Industries for three months of the year are provided below. ​

Total Cost Production Units
April $120,000 280,000
May 74,000 165,000
June 90,900 230,000

Using the high-low method, the variable cost per unit and the total fixed costs are:

a) $0.78 per unit and $4,000.
b) $0.40 per unit and $8,000.
c) $4.00 per unit and $800.
d) $7.80 per unit and $4,000.

Answer 1

Answer:

b) $0.40 per unit and $8,000.

Explanation:

The computation of the high-low method, the variable cost per unit and the total fixed costs is given below:-

                          Total Cost            Production Units

April                  $120,000                    280,000

May                   $74,000                      165,000

June                  $90,900                      230,000

Using High Low method  

Variable Cost per unit = (High Cost - low Cost) ÷ (High Cost Units - low Cost Units)

= ($120,000 - $74,000) ÷ (280,000  - 165,000 )

= $46,000 ÷ 115,000

= $0.40

Fixed Cost = Total Cost - Variable Cost per unit × Production unit

= $120,000 - $0.40 × 280,000

= $8,000