Final answer:
The estimated supplies cost at 1,000 units of production using the high-low method is $4,460, calculated by determining the variable cost per unit and adding the fixed cost, which remains constant across the different production levels.
Step-by-step explanation:
The high-low method is used to estimate the variable and fixed components of a cost by reviewing the highest and lowest activity levels. To apply this, we find the slope (variable cost per unit) by dividing the change in cost by the change in units produced between the highest and lowest activity levels.
The formula used is: Variable cost per unit = (Cost at high activity level - Cost at low activity level) / (High activity level units - Low activity level units). Then, the total fixed cost can be determined by subtracting the total variable cost at either the high or low level from the total cost at that level. The total supplies cost at a given production volume is calculated by adding the total fixed cost to the product of the units of production and the variable cost per unit.
In this scenario, the high is August (1,600 units at $7,100) and the low is September (600 units at $2,700). The variable cost per unit is thus ($7,100 - $2,700) / (1,600 - 600) = $4,400 / 1,000 = $4.40 per unit. Assume the total fixed cost does not change throughout the given range. If we wish to estimate the supplies cost at 1,000 units of production, we would calculate the total variable cost for 1,000 units and add the fixed cost.
The estimated cost would therefore be (1,000 units * $4.40/unit) + Total Fixed Cost. We know the cost for 1,600 units is $7,100, of which 1,600 x $4.40 is variable, amounting to $7,040. Therefore, the fixed cost is $7,100 - $7,040 = $60. Using this fixed cost, the total estimated cost for 1,000 units is (1,000 * $4.40) + $60 = $4,460.