Question

The Atlanta Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Atlanta Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. Cost Hours $24,000 5,000 $26,100 6,300 $34,700 7,900 $48,000 11,000 $38,300 9,250 What is the cost function

Answer 1

Total cost= 4,000 + 4x

x= hours

Step-by-step explanation:

Giving the following information:

Cost Hours

$24,000 5,000

$26,100 6,300

$34,700 7,900

$48,000 11,000

$38,300 9,250

First, we need to calculate the unitary variable cost and fixed cost. We will use the following formulas:

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

Variable cost per unit= (48,000 - 24,000) / (11,000 - 5,000)

Variable cost per unit= $4 per unit

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

Fixed costs= 48,000 - (4*11,000)

Fixed costs= $4,000

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

Fixed costs= 24,000 - (4*5,000)

Fixed costs= $4,000

Now, we can express the cost formula:

Total cost= 4,000 + 4x

x= hours