Question

Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow. Units Produced Total Cost 4,360 units $65,600 January February 275 6,250 March 1,000 15,000 April 4,775 73,750 May 1,750 32,500 June 3,015 48,000 1. From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the high-low method. Recall that Total Costs = (Variable Cost Per Unit x Number of Units Produced) + Fixed Cost. Complete the following table. Total Fixed Cost Variable Cost per Unit 2. With your Total Fixed Cost and Variable Cost per Unit from the high-low method, compute the total cost for the following values of N (Number of Units Produced). Number of Units Produced Total Cost 3,500 4,360 4,775 3. Why does the total cost computed for 4,360 units not match the data for January? a. The high-low method is accurate only for months in which production is at full capacity. b. The high-low method only gives accurate data when fixed costs are zero. c. The high-low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest. d. The high-low method gives accurate data only for levels of production outside the relevant range.

Answer 1

Answers

• Working

	Months	Units	Cost
High Level	Apr	4,775	$                   73,750.00
Low Level	Feb	275	$                     6,250.00
Difference		4,500	$                   67,500.00
A	Difference in Cost		$                   67,500.00
B	Difference in units		4,500
C = A/B	Variable cost per unit		$                         15.000
Working		High Level	Low Level
A	Total Cost	$                 73,750.00	$                     6,250.00
B	Total Units	4775	275
C	Variable cost per unit	$                         15.00	$                           15.00
D = B x C	Total Variable cost	$                 71,625.00	$                     4,125.00
E = A - D	Total Fixed Cost	$                   2,125.00	$                     2,125.00

• [1]
  Total Fixed Cost = $ 2125
  Variable cost per unit = $ 15
• [2]

Number of Units	Variable cost per unit	Total Variable cost	Fixed Cost total	Total COST
3500	$             15.00	$       52,500.00	$            2,125.00	$             54,625.00
4360	$             15.00	$       65,400.00	$            2,125.00	$             67,525.00
4775	$             15.00	$       71,625.00	$            2,125.00	$             73,750.00

• [3]

Correct Answer= Option ‘C’ High Low method not matches level of production other than highest and loest level.