Question

High-Low Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow. Units Produced Total Cost January 4,360 units $65,600 February 300 6,250 March 1,000 15,000 April 5,800 116,250 May 1,750 32,500 June 3,015 48,000 1. From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the high-low method. Recall that Total Costs = (Variable Cost Per Unit x Number of Units Produced) + Fixed Cost. Complete the following table. Total Fixed Cost Variable Cost per Unit 2. With your Total Fixed Cost and Variable Cost per Unit from the high-low method, compute the total cost for the following values of N (Number of Units Produced). Number of Units Produced Total Cost 3,500 4,360 5,800 3. Why does the total cost computed for 4,360 units not match the data for January? a. The high-low method is accurate only for months in which production is at full capacity. b. The high-low method only gives accurate data when fixed costs are zero.

Answer 1

High Low Total Cost Units Produced 116250 5800 6250 300 Variable Cost Per Unit: Change in cost / Change in units produced (116250-6250)/(5800-300) $ 20.00 Total Cost at 300 level is 6250, Fixed Cost = 6250-300*20) $ 250.00 Requirement (1) Total Fixed Cost $ Variable Cost per Unit $ 20.00 250.00 Requirement (2) Number of units Produced Total Cost 3500 $ 70,250.00 4360 $ 87,450.00 5800 $ 116,250.00 Requirement (3) High low method doesn't matches the level of production other than highest and lowest level Note : Do comment for any further assistance