Question

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:

Month	Units Shipped	Total Shipping Expense
January	2	$	2,200
February	5	$	2,700
March	3	$	2,100
April	4	$	2,400
May	6	$	2,700
June	7	$	3,700
July	1	$	1,600

Using the high-low method, estimate the cost formula for shipping expense.

Variable shipping expense: (per unit)

Fixed shipping expense: (per month)

Answer 1

Variable cost per unit = (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)

= (3,700-1,600)/(7-1)

= 2,100/6

= $350 per unit

Fixed cost = Highest activity cost - Highest activity x Variable cost per unit

= 3,700 - 7 x 350

= 3,700-2,450

= $1,250 per month

Variable shipping expense: $350 (per unit)

Fixed shipping expense: $1,250 (per month)

Kindly comment if you need further assistance. Thanks‼!