Question

Finch Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During year 2, the high point in activity occurred in June when it produced 208 boats at a total cost of $163,200. The low point in production occurred in January when it produced 40 boats at a total cost of $54,000. Required a. Use the high-low method to estimate the amount of fixed cost incurred each month by Finch Boat Company b. Determine the total estimated cost if 130 boats are made. Answer is complete but not entirely correct. Fixed cost Total estimated cost 28,048 X 247,345 > b. $

Answer 1

a) Variable cost per unit = Change in Cost/Change in Unit = (163200-54000)/(208-40) = 650

Fixed cost = Total cost-Variable cost = 163200-(650*208) = 28000

b) Total estimated cost = Variable cost+Fixed cost = (130*650)+28000 = 112500