Question

Manley Co. manufactures office furniture. During the most productive month of the year, 5,000 desks were manufactured at a total cost of $87,000. In its slowest month, the company made 2,000 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs are:

Answer 1

$24,500

Step-by-step explanation:

For computing the total fixed cost first we have to determine the total fixed cost which is shown below:

Variable cost per desk = (Total high cost - total low cost) ÷ (High number of desk manufactured - low number of desk manufactured)

= ($87,000 - $49,500) ÷ (5,000 desks - 2,000 desks)

= $37,500 ÷ 3,000 desk

= $12.5

Now the fixed cost equal to

= Total high cost - (High number of desk × Variable cost per hour)

= $87,000 - (5,000 desks × $12.5)

= $87,000 - $62,500

= $24,500