A department of Alpha Co. incurred the following costs for the month of September. Variable costs,...

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A department of Alpha Co. incurred the following costs for the month of September. Variable costs, and the variable portion o

b. Use the high-low method to calculate the cost formula for mixed cost. (Do not round intermediate calculations and round yo

business accounting

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Answer 1

Answer #1

a.

Cost Per Unit September October $1.90 Units Variable Cost (A) Fixed Cost (B) Mixed Cost (C-A-B) Total Cost (C) 4000 $7,600 $2

b.

Cost Formula $22,794 + $0.29 Per Unit

Cost Formula Fixed Cost +No. of Units X Variable Cost Per unit

Working Note:

Calculation of Variable cost under High low method:

$Variable Cost per Unit = \frac{Highest activity cost - Lowest activity cost}{Highest activity unit - Lowest activity unit}$

$Variable Cost per Unit = \frac{\$24,940 - \$23,940}{7400 - 4000}$

$Variable Cost per Unit = \frac{\$1,000}{3400 }$

$Variable Cost per Unit = \$0.29$

Now you can calculate Fixed Cost:

Fixed cost = Total cost of activity - Activity unit X Variable cost per unit

Fixed cost = $24,940 - (7400 X $0.29)

Fixed cost = $24,940 - $2,146

Fixed cost = $22,794

Note: Fixed cost can vary if you calculate it by taking lowest activity base due to round off in case of variable cost the actual variable cost is $.29412 (Without round off).

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