Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company. Month Cost Units January €4,890 4,100 February 4,024 3,200 March 6,480 5,300 April 8,840 7,500 May 5,800 4,800 June 7,336 6,600 Gallup Company uses the high-low method to analyze mixed costs. a. How would the cost function be stated? b. What is the estimated total cost at an operating level of 5,000 units?

Question

Business

Ellison

15 January, 03:59

Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company. Month Cost Units January €4,890 4,100 February 4,024 3,200 March 6,480 5,300 April 8,840 7,500 May 5,800 4,800 June 7,336 6,600 Gallup Company uses the high-low method to analyze mixed costs. a. How would the cost function be stated? b. What is the estimated total cost at an operating level of 5,000 units?

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Answers (1)

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Aydin Case · Answer 1

Instructions are listed below.

Explanation:

Giving the following information:

Month Cost Units

January $4,890; 4,100 units

February $4,024; 3,200 units

March $6,480; 5,300 units

April $8,840; 7,500 units

May $5,800; 4,800 units

June $7,336; 6,600 units

Gallup Company uses the high-low method to analyze mixed costs.

We need to use the following formula:

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

Variable cost per unit = (8,840 - 4,024) / (7,500 - 3,200)

Variable cost per unit = 1.12 per unit

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

Fixed costs = 8,840 - (1.12*7,500) = 440

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

Fixed costs = 4,024 - (1.12*3,200) = 440

A) Cost function:

Total cost = 1.12*x + 440

B) Units = 5,000

Total cost = 1.12*5,000 + 440 = $6,040