Question

Royal Enterprises has presented the following information for the past three months operations:

Month Units Average Cost
June 3,300 $ 11.80
July 5,700 $ 7.80
August 6,900 $ 7.00
a. Using the high-low method, calculate the fixed cost per month and variable cost per unit. (Round your variable cost to 2 decimal places.)
b. What would total costs be for a month with 5,300 units produced?

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Month Units Average Cost

June 3,300 $ 11.80=38,940

July 5,700 $ 7.80 = 44,460

August 6,900 $ 7.00 = 48,300

To calculate the unitary variable cost and 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= (48,300 - 38,940) / (6,900 - 3,300)

Variable cost per unit= $2.6

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

Fixed costs= 48,300 - (2.6*6,900)

Fixed costs= $30,360

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

Fixed costs= 38,940 - (2.6*3,300)

Fixed costs= $30,360

Now, the total cost for 5,300 units:

Total cost= 30,360 + 2.6*5,300

Total cost= $44,140