Question

Alden Co.’s monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs.

Month	Units Sold					Total Cost				Month		Units Sold					Total Cost
1			320,500			$	158,000			7				359,500				$	274,364
2			165,500				101,750			8				270,500					152,250
3			265,500				206,100			9				75,900					64,500
4			205,500				100,500			10				150,500					131,125
5			290,500				202,000			11				94,500					94,500
6			190,500				112,500			12				100,500					81,150

Please help me with this 2 part question

1. Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method. (Do not round intermediate calculations.)

2. Predict future total costs when sales volume is (a) 389,000 units and (b) 429,000 units.

Answer 1

Answer

• High Low Method working

	Months	Units	Cost
High Level	7	359,500	$                274,364.00
Low Level	9	75,900	$                   64,500.00
Difference		283,600	$                209,864.00
A	Difference in Cost		$                209,864.00
B	Difference in units		283,600
C = A/B	Variable cost per unit		$                           0.740
Working		High Level	Low Level
A	Total Cost	$              274,364.00	$                   64,500.00
B	Total Units	359500	75900
C	Variable cost per unit	$                           0.74	$                             0.74
D = B x C	Total Variable cost	$              266,030.00	$                   56,166.00
E = A - D	Total Fixed Cost	$                   8,334.00	$                     8,334.00

• Requirement 1

Variable cost per unit = $ 0.74

Monthly Fixed Cost = $ 8,334

• Requirement 2

[a] Cost for 389000 units = $ 8334 + ($0.74 x 389000) = $ 296,194
[b] Cost for 429000 units = $ 8334 + ($0.74 x 429000) = $ 325,794