Question

Georgia Meadows Company uses the high-low method to analyze production costs. The following information relates to the production data for the first six months of the year. Month Cost(Y) Hours(H) January $ 8,542 6,530 February $ 7,750 5,950 March $ 9,700 7,500 April $ 7,435 5,700 May $ 7,200 5,500 June $ 9,263 6,750 What is the estimated total cost at an operating level of 8,000 hours?

Answer 1

Total cost= $10,325

Step-by-step explanation:

Giving the following information:

Month Cost(Y) Hours(H)

January: $8,542 - 6,530

February: $7,750 - 5,950

March: $9,700 - 7,500

April: $7,435 - 5,700

May: $7,200 - 5,500

June: $9,263 - 6,750

To calculate the total 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= (9,700 - 7,200) / (7,500 - 5,500)

Variable cost per unit= $1.25 per hour

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

Fixed costs= 9,700 - (1.25*7,500)= $325

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

Fixed costs= 7,200 - (1.25*5,500)= $325

Now, for 8,000 hours:

Total cost= 325 + 1.25*8,000= $10,325