Question

The RideEm Bicycles factory can produce 140 bicycles in a day at a total cost of $10,600. It can produce 160 bicycles in a day at a total cost of $11,400. What are the company's daily fixed costs (in dollars)

Answer 1

Fixed costs= $5,000

Step-by-step explanation:

To calculate the fixed costs, we need to use the high-low method.

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (11,400 - 10,600) / (160 - 140)

Variable cost per unit= $40

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 11,400 - (40*160)

Fixed costs= $5,000

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 10,600 - (40*140)

Fixed costs= $5,000