Question

High-Low Method The manufacturing costs of Rosenthal Industries for the first three months of the year follow:

Total Costs Production
January $228,780 1,860 units
February 245,560 3,410
March 355,880 4,960
Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost.

Answer 1

a. Variable cost per unit = High cost - Low cost / High volume - Low volume

Variable cost per unit = $355,880 - $228,780 / 4,960 - 1,860

Variable cost per unit = $127,100 / 3,100

Variable cost per unit = $41

b. Total cost = Fixed cost + Variable cost

$228,780 = Fixed cost + (1,860 * $41)

$228,780 = Fixed cost + $76,260

Fixed cost = $228,780 - $76,260

Fixed cost = $152,520