Final answer:
The fixed cost for Sanders Bears' cost estimating equation is calculated using the high-low method. By subtracting the total variable cost at the high activity level from the total cost at the same level, the fixed cost is determined to be $21,200.
Step-by-step explanation:
The student is asking how to calculate the fixed cost component of a cost estimating equation using the high-low method in a cost forecasting system. To find the fixed cost using this method, we need to follow a few steps:
- First, determine the variable cost per unit, which is provided as $5.
- Next, calculate the difference in total costs and the difference in production level between the high and low points.
- Then, calculate the variable cost component by multiplying the variable cost per unit by the number of units.
- Finally, determine the fixed cost by subtracting the total variable cost at either the high or the low point from the total cost at the same point.
We're given the high point total cost of $257,200 for 47,200 animals and the low point total cost of $169,700 for 29,700 animals. The variable cost at high point would be 47,200 animals' times $5, which is $236,000. By subtracting this from the high point total cost ($257,200), we'll get the fixed cost:
Fixed Cost = High Point Total Cost - (Variable Cost per Unit * High Point Production Level)
Fixed Cost = $257,200 - ($5 * 47,200 animals)
Fixed Cost = $257,200 - $236,000
Fixed Cost = $21,200
The fixed cost for the cost estimating equation is $21,200.