Question

Presented below are the production data for the first six months of the year for the mixed costs incurred by Venus Company. Month Units January February March April May June Cost $5,350 $4,550 $6,810 $10,200 $5,900 $7,360 4,100 3,500 5,530 8,500 5,100 6,530 Venus Company uses the high-low method to analyze mixed costs. How would the cost function be stated? A. y = $5,650 + $1.30X B. y = $595 + $1.13X C. y = $10,200 + $1.20X OD. y = $2,840 + $1.13X

Answer 1

Answer: $595 + $1.13x

Formula of high low method

Variable Cost per unit : {(Highest Cost - Lowest Cost) / (Highest unit - Lowest Unit)}.

={(10200 - 4550) / (8500-3500)}

=$1.13

Fixed Cost = { Highest Cost - (Variable Costs per unit * Highest Unit)}

= { 10200 - ( 1.13 * 8500)}

= $595.

Therefore, the cost function will be "y = $595 + $1.13x".

Where 'x' refers to the number of units and 'y' denotes Total cost.