Question

Using the high low method we estimated fixed costs to be $200,000 and variable costs to be $15 a unit. If 10,000 units are produced what is total cost

Answer 1

According to the high-low method, we can determine the variable cost per unit and the fixed cost component of a company's total cost.
We are given that the fixed costs are $200,000 and the variable cost is $15 per unit. Using this information, we can calculate the total cost of producing 10,000 units as follows:

Variable cost per unit = High cost - Low cost / High activity level - Low activity level

Let's assume the high cost is when 10,000 units were produced and the low cost is when 5,000 units were produced.

Variable cost per unit = (Cost when 10,000 units were produced - Cost when 5,000 units were produced) / (10,000 - 5,000)= ($150,000 - $75,000) / 5,000= $15 per unit

Therefore, variable cost per unit is $15.Total cost = Fixed costs + (Variable cost per unit × Number of units produced)Total cost = $200,000 + ($15 × 10,000)Total cost = $200,000 + $150,000Total cost = $350,000

Therefore, the total cost of producing 10,000 units is $350,000.