Question

High-Low Method

Liberty Inc. has decided to use the high-low method to estimate costs. The data for various levels of production are as follows:

Units Produced		Total Costs
7,200		$ 516,600
2,700		332,100
4,950		483,760

a. Determine the variable cost per unit and the fixed cost.

Variable cost per unit	$
Fixed cost	$

b. Based on part (a), estimate the total cost for 3,560 units of production.
$

Answer 1

Requirement: a Variable cost per unit = Y2-Y1 / x2-X1 516600 332100 72001 2700 The total cost at highest Units produced (Y2) The total cost at lowest units produced (41) The number of units at highest level of activity (X2) The number of units at lowest level of activity (x1)| Y2 - Y1 X2 - X1 Variable cost per unit (Y2-Y1 / X2-X1) Total Fixed cost = Y2 - bx2 = Y1 - bx1 b = Variable cost Y2 нь 1845001 45001 41.000 516600 41 7200 221400 X2 Y2-bx2 Y1 b X1 Y1 - bx1 332100 41 2700 221400 Total Fixed cost 221400

Requirement: b Total cost for an Units Production Variable cost (3560 * $41) Total fixed cost Total Production cost 3560 145960 221400 367360