Question

The manufacturing costs of Ackerman Industries for the first three months of the year follow:
Total Costs Units Produced
January $1,900,000 20,000 units
February 2,250,000 27,000
March 2,400,000 30,000
Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost. Round all answers to the nearest whole dollar.
a. Variable cost per unit $
b. Total fixed cost $

Answer 1

Answer:

a. $50

b. $500,000

Explanation:

The computation of the fixed cost and the variable cost per unit by using high low method is shown below:

a. Variable cost per unit = (High total cost - low total cost) ÷ (High number of units produced - low number of units produced)

= ($2,400,000 - $1,900,000) ÷ (30,000 units - 20,000 units )

= $500,000 ÷ 10,000 units

= $50

b. Now the fixed cost equal to

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

= $2,400,000 - (30,000 units × $50)

= $2,400,000 - $1,500,000

= $900,000