Question

High-Low Method

The manufacturing costs of Ackerman Industries for the first three months of the year follow:
Total Costs Units Produced
January $1,900,000 20,000 units
February 2,250,000 27,000
March 2,400,000 30,000
Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost.
a. Variable cost per unit $
b. Total fixed cost $

Answer 1

Variable cost per unit= $50

Fixed costs= $900,000

Step-by-step explanation:

Giving the following information:

Total Costs Units Produced

January $1,900,000 20,000 units

February 2,250,000 27,000

March 2,400,000 30,000

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

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

Variable cost per unit= (2,400,000 - 1,900,000) / (30,000 - 20,000)

Variable cost per unit= $50

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

Fixed costs= 2,400,000 - (50*30,000)

Fixed costs= $900,000

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

Fixed costs= 1,900,000 - (50*20,000)

Fixed costs= $900,000