Question

Presented below are the production data for the first six months of the year for the mixed costs incurred by Venus Company.

                                Month                         Cost             Units

                                January                    $5,260              4,100

                                February                  $5,000              4,000

                                March                       $6,810              5,520

                                April                         $9,900              9,000

                                May                           $5,900              4,960

                                June                           $7,390              6,510

Venus Company uses the high-low method to analyze mixed costs.

How would the cost function be stated?

	A.	y = $4,900 + $1.25X
	B.	y = $9,900 + $1.10X
	C.	y = $1,080 + $0.98X
	D.	y = $2,510 + $0.98X

Answer 1

Variable cost per unit=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

=(9900-5000)/(9000-4000)

=$0.98 per unit

Total fixed cost=9900-(9000*0.98)

=$1080

Hence cost function(y) would be=Total fixed cost+Variable cost per unit*Units sold(x)

ie

y = $1,080 + $0.98X