Question

The following data for a production department relate to two accounting periods:

Activity(machine-hours)....... 17,000 18,500
Department costs................... $246,500 $251,750
The best estimate of fixed department cost is closest to:________.

Answer 1

Fixed costs= $187,000

Step-by-step explanation:

Giving the following information:

Activity(machine-hours): 17,000 18,500

Department costs: $246,500 $251,750

To calculate the fixed and variable cost, we need to use the high-low method:

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

Variable cost per unit= (251,750 - 246,500) / (18,500 - 17,000)

Variable cost per unit= $3.5

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

Fixed costs= 251,750 - (3.5*18,500)

Fixed costs= $187,000

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

Fixed costs= 246,500 - (3.5*17,000)

Fixed costs= $187,000