Question

Multiple Choice Question 64 Frazier Manufacturing Company collected the following production data for the past month: Units Produced 1,600 1,300 1,500 1,100 Total Cost $66,000 57,000 67,500 49,500 If the high-low method is used, what is the monthly total cost equation? Total cost = $9,900 + $36/unit O Total cost = $16,500 + $30/unit Total cost = $13,200 + $33/unit Total cost = $0 + $45/unit Click if you would like to Show Work for this question: Open Show Work!

Answer 1

Answer -

Total cost = $13200 + $33/unit

Calculation:

Total cost of product or Product cost consist both variable and fixed cost. The high-low method is used to determined or identified variable cost and fixed cost from the product cost or mixed cost.

Under high-low method:

Total cost = Fixed cost + Variable cost per unit

So,

As per given information,

High activity cost = $66000

Low activity cost = $49500

Highest activity units = 1600 units

Low activity units = 1100 units

Therefore,

Variable cost per unit and fixed cost can be determine by using high-low method,

Variable cost per unit:

= (High activity cost - Low activity cost) / (Highest activity units - Low activity units)

= ($66000 - $49500) / (1600 units - 1100 units)

= $33 per unit or $33/unit

And

Fixed cost:

= High activity cost - (Variable cost per unit * Highest activity units)

= $66000 - ($33/unit * 1600 units)

= $13200

Now,

The monthly total cost equation,

Total cost = Fixed cost + Variable cost per unit

Total cost = $13200 + $33/unit