A Company manufactures a product A. The company estimates the cost function for the total costs. The cost driver is number of units. The following informations were collected:
Month Units Total Costs
January 3,560 $242,400
February 3,800 $252,000
March 4,000 $260,000
April 3,600 $244,000
May 3,200 $228,000
June 3,040 $221,600
Compute a cost function using the high-low method.
TCHA =Total cost of high activity, HAU=Highest activity unit
· Variable Cost = (TCHA−Total Cost of Low Activity) / (HAU - Lowest Activity Unit) = (260000-220000) / (4000-3040) = 40.625
· Total Cost = (VC * Units Produced) + Total Fixed Cost
· Fixed cost = Highest activity cost – (Variable cost per unit x Highest activity units) = 260000-(40.625*4000) = 97500
A Company manufactures a product A. The company estimates the cost function for the total costs.