Question

8.

Inspection costs at one of Iuliano Corporation's factories are listed below:

	Units produced	Inspection cost
February	915	$	17,212
March	969	$	17,600
April	921	$	17,265
May	905	$	17,110
June	927	$	17,294
July	912	$	17,180
August	929	$	17,332
September	869	$	16,660
October	908	$	17,138

Management believes that inspection cost is a mixed cost that depends on units produced.

Using the high-low method, the estimate of the fixed component of inspection cost per unit produced is closest to: (Round the intermediate calculations to two decimal places.)

Answer 1

Solution

Variable cost per employee	$                      9.40
Fixed cost	$              8,491.40

Working

		Cost	No. of activities
A	High Level	$          17,600.00	969
B	Low Level	$          16,660.00	869
C=A-B	Difference	$                940.00	$                  100.00
A	Cost difference	$                940.00
B	No. of activities difference	100
C=A/B	Variable cost per unit	$                     9.40
		High Level	Low Level
A	No. of activities	969	869
B	Variable cost per unit	$                9.4000	$                  9.4000
C=AxB	Total Variable cost	$             9,108.60	$              8,168.60
D	Total cost	$          17,600.00	$            16,660.00
E=D-C	Total fixed cost	$             8,491.40	$              8,491.40