Question

Quantum Company uses the high-low method to estimate the cost function. The information for 2017 is provided below: Machine-hours Labor Costs Highest observation of cost driver 1,000 $32,000 Lowest observation of cost driver 200 $16,000 What is the constant for the estimated cost equation

Answer 1

Fixed costs= $12,000

Variable cost per unit= $20

Step-by-step explanation:

Giving the following information:

Machine-hours Labor Costs:

Highest observation of cost driver 1,000 $32,000

Lowest observation of cost driver 200 $16,000

To calculate the fixed costs 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= (32,000 - 16,000) / (1,000 - 200)

Variable cost per unit= $20

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

Fixed costs= 32,000 - (20*1,000)

Fixed costs= $12,000

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

Fixed costs= 16,000 - (20*200)

Fixed costs= $12,000