Question

Sterling Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During year 2, the high point in activity occurred in June when it produced 200 boats at a total cost of $720,000. The low point in production occurred in January when it produced 100 boats at a total cost of $450,000. Required Use the high-low method to estimate the amount of fixed cost incurred each month by Sterling Boat Company. Determine the total estimated cost if 150 boats are made.

Answer 1

$585,000

Step-by-step explanation:

Using high-low method

Variable cost = Total cost (high activity) - Total cost (low activity) / Highest activity unit - Lowest activity unit

Variable cost = 720,000 - 450,000 / 100

Variable cost = 270,000 / 100

Variable cost = 270

Variable cost = Cost - Fixed cost

Now 720,000 = (200) * 2,700 - Fixed cost

- FIxed cost = 540,000 - 720,000

- Fixed cost = -180,000

Fixed cost = 180,000

Now Cost for 150 = 2,700 (150) + 180,000

= 405,000 + 180,000

= $585,000