Question

Westerville Company accumulates the following data concerning a mixed cost, using units produced as the activity level.

Units Produced Total Cost

March 10,029 $16,724
April 8,765 15,312
May 10,480 17,492
June 8,600 14,860
July 9,293 15,781

Required:
a. Compute the variable cost per unit using the high-low method.
b. Compute the fixed cost elements using the high-low method.
c. Estimate the total cost if the company produces 8,170 units.

Answer 1

Answer & Explanation:

a. Using the high-low method, Variable cost per unit is;

`= (Highest Variable Cost - Lowest Variable Cost)/(Highest number of units - Lowest number of Units) \\\\= (17,492 - 14,860)/(10,480 - 8,600) \\\\= $1.40`

= $1.40

b. Fixed Cost

= Total Cost at lowest unit - Variable costs at lowest unit

= 14,860 - (1.4 * 8,600)

= $‭2,820‬

c. Variable cost at 8,170 units + Fixed cost

= (8,170 * 1.4) + 2,820

= $‭14,258‬