Question

Vernon Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During year 2, the high point in activity occurred in June when it produced 209 boats at a total cost of $154,800. The low point in production occurred in January when it produced 31 boats at a total cost of $48,000. Required Use the high-low method to estimate the amount of fixed cost incurred each month by Vernon Boat Company. Determine the total estimated cost if 110 boats are made.

Answer 1

Total cost= $95,400

Step-by-step explanation:

First, we need to calculate the unitary and fixed costs using the high-low method:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (154,800 - 48,000) / (209 - 31)

Variable cost per unit= $600

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 154,800 - (600*209)

Fixed costs= $29,400

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 48,000 - (600*31)

Fixed costs= $29,400

Now, the total cost for 110 boats:

Total cost= 29,400 + 110*600

Total cost= $95,400