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16 April, 22:36

Strait Co. manufactures office furniture. During the most productive month of the year, 3,700 desks were manufactured at a total cost of $82,900. In the month of lowest production the company made 1,120 desks at a cost of $58,600. Using the high-low method of cost estimation, total fixed costs are a.$48,046 b.$24,300 c.$58,600 d.$82,900

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  1. 17 April, 01:54
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    The total fixed costs amounts to $48,083

    Explanation:

    In order to compute the total fixed cost, first need to compute the variable cost per unit as:

    Variable cost per unit = (Total cost of most productive month - Aggregate cost of lowest production) / (Units produced in most productive month - Units produced in lowest productive month)

    = ($82,900 - $58,600) / (3,700 - 1,120)

    = $24,300 / 2,580

    Variable cost per unit = $9.41

    Now, computing the variable cost for 3,700 desks (because of high low method) as:

    Variable cost = 3,700 * $9.41

    Variable cost = $34,817

    Computing the fixed cost as:

    Fixed cost = Total cost - Total variable cost

    where

    Total cost is $82,900

    Total variable cost is $34,817

    So,

    Fixed cost = $82,900 - $34,817

    Fixed cost = $48,083

    Note: The correct answer is $48,083. There might be correct option is not mentioned.
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