Question

High-low method

Ziegler Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

Units Produced			Total Costs
104,500			$30,703,250
119,500			33,380,750
136,500			36,415,250

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

1. Determine the variable cost per unit and the total fixed cost. Round your answer for the variable cost to the nearest cent. Round your answer for total fixed costs to the nearest dollar.

   Variable cost:	$ per unit
   Total fixed cost:	$

2. Based on part (a), estimate the total cost for 87,000 units of production. Round your answer to the nearest dollar.

   Total cost for 87,000 units:

   $

Answer 1

a) Variable Cost under High low cost method   =   High Activity Cost - Low Activity Cost
				Highest Activity Units - Lowest Activity Unit
Variable Cost under High low cost method   =   $ 3,64,15,250 - $ 3,07,03,250 = $ 178.50 per unit
					1,36,500 - 1,04,500
Total Fixed Cost = High Activity Cost - Total Variable Cost
Total Fixed Cost = $ 3,64,15,250 - ($ 178.50 x 1,36,500) = $ 1,20,50,000
b)	Variable Cost (87,000 x $ 178.50 )		1,55,29,500
	Fixed Cost				1,20,50,000
	Total Cost				2,75,79,500	$