Question

Strait Co. manufactures office furniture. During the most productive month of the year, 3,300 desks were manufactured at a total cost of $82,000. In the month of lowest production, the company made 1,130 desks at a cost of $59,000. Using the high-low method of cost estimation, total fixed costs are

Answer 1

Using the high-low method of cost estimation, total fixed costs are $47,020

Step-by-step explanation:

Cost at highest level of activity = $82,000.00

Cost at Lowest level of activity = $59,000.00

Highest level of activity = 3,300

Lowest Level of activity = 1,130

Variable cost per unit = $(82,000 - 59,000) ÷ (3,300 -1,130)

Variable cost per unit = $23,000 ÷ 2,170

Variable cost per unit = $10.60

Fixed Costs = $82,000 - (3,300 × 10.60)

Fixed Costs = $47,020