Question

Inspection costs at one of Iuliano Corporation's factories are listed below:

Units produced Inspection cost

February 911 $ 16,812

March 961 $ 17,200

April 917 $ 16,865

May 901 $ 16,710

June 923 $ 16,894

July 908 $ 16,780

August 925 $ 16,932

September 865 $ 16,300

October 904 $ 16,738

Management believes that inspection cost is a mixed cost that depends on units produced.

Using the high-low method, the estimate of the fixed component of inspection cost per month is closest to: (Round the intermediate calculations to two decimal places.)

$16,720.00

$16,301.00

$16,711.00

$8,185.82

Answer 1

The correct answer is D.

Step-by-step explanation:

Giving the following information:

Units produced - Inspection cost

February: 911 - $16,812

March: 961 - $17,200

April: 917 - $16,865

May: 901 - $16,710

June: 923 - $16,894

July: 908 - $16,780

August: 925 - $16,932

September: 865 - $16,300

October: 904 - $16,738

To calculate the fixed component using the high-low method, first, we need to calculate the unitary variable cost:

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

Variable cost per unit= (17,200 - 16,300) / (961 - 865)

Variable cost per unit= $9.375 per unit

Now, we can calculate the fixed costs:

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

Fixed costs= 17,200 - (9.375*961)

Fixed costs= 8,190.625

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

Fixed costs= 16,300 - (9.375*865)

Fixed costs= $8,190.625