Question

The manufacturing cost of Calico Industries for three months of the year are provided below:

Total Cost Production Units
April $120,000 280,000
May 74,000 165,000
June 90,900 230,000
Using the high-low method, the variable cost per unit and the total fixed costs are:

a. $0.78 per unit and $4,000

b. $0.40 per unit and $8,000

c. $4.00 per unit and $800

d. $7.80 per unit and $4,000

Answer 1

b. $0.40 per unit and $8,000

Step-by-step explanation:

High low method separates the fixed cost and variable cost using net of Highest activity level and Lowest activity level and net of their relevant costs.

According to High low method

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

Variable cost per unit = ( $120,000 - $74,000 ) / ( 280,000 - 165,000 )

Variable cost per unit = $46,000 / 115,000

Variable cost per unit = $0.4

Fixed operating cost = Total cost - Total Variable cost = $120,000 - ( 280,000 x $0.4 ) = $8,000