Final answer:
The total estimated fixed cost for Handy Hiking is calculated using the high-low method and is found to be $50,000.
Step-by-step explanation:
The student is asking how to calculate the fixed costs using the high-low method based on the production and cost data provided by a company named Handy Hiking that produces backpacks. To find the fixed cost using the high-low method, first, we calculate the variable cost per unit by taking the difference in total costs and dividing it by the difference in units produced at the highest and lowest levels of production.
Total Variable Cost per Unit = (Total Cost at the highest level - Total Cost at the lowest level) / (Number of units at the highest level - Number of units at the lowest level)
Total Variable Cost per Unit = ($110,000 - $87,500) / (4,000 - 2,500) = $22,500 / 1,500 = $15
After finding the variable cost per unit, we can calculate the total fixed costs by subtracting the total variable costs at either the high or low point from the total costs at the same point.
Total Fixed Cost = Total Cost - (Variable Cost per Unit * Number of Units)
Total Fixed Cost at High Level = $110,000 - ($15 * 4,000) = $110,000 - $60,000 = $50,000
Therefore, the total estimated fixed cost for Handy Hiking is $50,000.