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28 July, 12:42

Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year's data are presented below: Month Units Produced Administrative Costs January 32,500 $ 24,288 February 37,700 27,720 March 24,700 17,820 April 40,300 30,360 May 49,400 37,290 June 42,900 29,040 July 53,300 32,670 August 45,500 30,030 September 26,000 20,460 October 48,100 34,320 November 61,100 40,920 December 54,600 36,630 Total 516,100 $ 361,548 Average 43,008 $ 30,129

What is the equation for administrative costs using the high-low method?

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  1. 28 July, 16:07
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    Total cost = 2,145 + (0.63462*x)

    Explanation:

    Giving the following information:

    Month - Units Produced - Administrative Costs

    January: 32,500 units $24,288

    February: 37,700 units $27,720

    March: 24,700 units $17,820

    April: 40,300 units $30,360

    May: 49,400 units $37,290

    June: 42,900 units $29,040

    July: 53,300 units $32,670

    August: 45,500 units $30,030

    September: 26,000 units $20,460

    October: 48,100 units $34,320

    November: 61,100 units $40,920

    December: 54,600 units $36,630

    To determine the equation for administrative costs using 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 = (40,920 - 17,820) / (61,100 - 24,700) = $0.63462 per unit

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

    Fixed costs = 40,920 - (0.63462*61,100) = $2,145

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

    Fixed costs = 17,820 - (0.63462*24,700) = $2,145

    administrative costs formula:

    Total cost = 2,145 + (0.63462*x)
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