The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method, the estimated fixed costs are $

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Business

Calvin Hurley

19 August, 05:12

The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method, the estimated fixed costs are $

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Isabella Stewart · Answer 1

Fixed cost = $50,000

Explanation:

The high low method is the process by which highest level of activity ND lowest level of activity are comapred along with total cost at each level. Fixed and variable cost can be calculated using equations.

Variable cost = (Highest activity cost - Lowest activity cost) / (Highest activity unit - Lowest activity unit)

Variable cost = (110,000-87,500) / (4,000-2,500)

Variable cost = 22,500 / 1,500 = $15 per unit

Fixed cost = High activity cost - (Variable cost * High activity units)

Fixed cost = 110,000 - (15*4,000)

Fixed cost = 110,000 - 60,000

Fixed cost = $50,000