Question

requirea iniormaion Exercise 6A-4 High-Low Method: Scattergraph Analysis [L06-10] The following information applies to the questions displayed below) Archer Company is a wholesaler of custom-built air-conditioning units for commercial buildings. It gathered the following monthly data relating to units shipped and total shipping expense: of 3 Units, Total Shipping MonthShippedExpense s 2,408 $ 2,900 $ 2,300 $ 2,600 s 2,900 $ 3,900 s 1,800 January February Manch April May June uly

Answer 1

High low method is a method which is used to segregate Fixed cost and variable cost of a semi variable cost.

The formula for calculating variable cost = (difference in cost at highest and lowest activity level) / (difference in unit at highest and lowest activity level)

The lowest point is ( 1, $1800)

The highest point is ( 8, $3900)

Therefore variable cost= [ ($3900-$1800) / (8-1) ]

= $2100 / 7

= $300 per unit

From here, we can use either point to determine the fixed cost.

using the data point (1, $1800)

Total Cost = Fixed cost element + Variable Cost

$1800= Fixed cost element + (1*$300)

$1800= Fixed cost element + $300

$1800 - $300= Fixed cost element

$1500= Fixed cost element

We can check the correctness of the answer using the highest activity level point

Total cost = $1500 + (8 * $300)

=$1500 + $2400

= $3900

The cost formula for shipping expense where X is the number of units shipped

cost = $1500 + ($300 * X)

Variable shipping expense	$300	Per Unit
Fixed shipping expense	$1500	Per Month