Question

To follow is information about the units produced and total manufacturing costs for Snow Enterprises for the past six months. Using the high-low method, what will the total monthly manufacturing costs be if the company produces 7,500 units?

Month Number of units produces Total manufacturing costs
January 7800 $8150
February 7500 $8000
March 6600 $7550
April 6800 $7650
May 4500 $6500
June 7000 $7750

A. $3,915
B. $5,790
C. $1,875
D. $3,860

Answer 1

$8,000

Step-by-step explanation:

To compute the total cost, first we have to calculate the fixed cost and the variable cost per hour by using high low method is shown below:

Variable cost per hour = (High manufacturing cost - low manufacturing cost) ÷ (High units produced - low units produced)

= ($8,150 - $6,500) ÷ (7,800 units - 4,500 units)

= $1,650 ÷ 3,300 units

= $0.5

Now the fixed cost equal to

= High manufacturing cost - (High units × Variable cost per unit)

= $8,150 - (7,800 units × $0.5)

= $8,150 - $3,900

= $4,250

To produce the 7,500 units, the total manufacturing cost would be

= Fixed cost + number of units produced × Variable cost per unit

= $4,250 + 7,500 units × $0.5

= $4,250 + 3,750

= $8,000

This is the answer and the same is not provided in the given options