Question

High-Low Method The manufacturing costs of Ackerman Industries for the first three months of the year follow: Total Costs Units Produced January $221,400 1,650 units February 248,950 3,210 March 344,400 4,650 Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost. Round all answers to the nearest whole dollar. a. Variable cost per unit $ b. Total fixed cost $

Answer 1

a.

Variable cost per unit is $41 per unit

b.

Total fixed cost is $153750

Step-by-step explanation:

The mixed costs are a type of cost that contains an element of both the Fixed and the variable costs in them. To calculate the variable component per unit present in a mixed cost, we use the high-low method. The formula for variable cost per unit under this method is,

Variable cost per unit = (Cost at highest activity level - cost at lowest activity level) / (Highest activity level - Lowest activity level)

The activity level here is the number of units.

The highest activity level is March.

The lowest activity level is January.

Variable cost per unit = (344400 - 221400) / (4650 - 1650)

Variable cost per unit = $41 per unit

The total fixed cost is = Total cost at any activity level - Variable cost component of total cost at that activity level

The total fixed cost is = 344400 - (41 * 4650) = $153750