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 Month Units Sold 320,000 160,000 280,000 200,000 300,000 200,000 Total Cost $160,000 100,000 220,000 100,000 230,000 120,000 Units Sold 340,000 280,000 80,000 160,000 100,000 110,000 Total Cost $220,000 160,000 64,000 140,000 100,000 80,000 Problem 18-2A Part 1 1. Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method. (Do not round Intermediate calculations.)

Answer 1

	Highest activity [A]	Lowest activity[B]	Change [A-B]
cost	220000	64000	156000
Unit sold	340000	80000	260000

Variable cost per unit =Change in cost/change in unit sold

                        = 156000/260000

                        = $ .60 per unit sold

Calculation of Fixed cost:

Total cost at high point		220000
variable cost at high point
volume at high point	340000
variable cost per unit	.60
Total variable cost at high point (340000*.60)		204000
Total fixed cost		16000
Total cost at Low point		64000
variable cost at low point
volume at low point	80000
variable cost per unit	.60
Total variable cost at low point (80000*.60)		48000
Total fixed cost		16000