Question

In a slow year, Deutsche Burgers will produce 3.2 million hamburgers at a total cost of $5.4 million. In a good year, it can produce 5.4 million hamburgers at a total cost of $6.1 million. a. What are the fixed costs of hamburger production

Answer 1

Fixed costs= $4,382,800

Step-by-step explanation:

Giving the following information:

3.2 million hamburgers at a total cost of $5.4 million.

5.4 million hamburgers at a total cost of $6.1 million.

To calculate the fixed cost, we can use the high-low method. 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= (6,100,000 - 5,400,000) / (5,400,000 - 3,200,000)

Variable cost per unit= $0.318

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

Fixed costs= 6,100,000 - (0.318*5,400,000)

Fixed costs= $4,382,800

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

Fixed costs= 5,400,000 - (0.318*3,200,000)

Fixed costs= $4,382,800