Question

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Inspection costs at one of Ratulowski Corporation's factories are listed below:

	Units Produced			Inspection Costs
April		906		$	16,312
May		951		$	16,700
June		912		$	16,365
July		896		$	16,210
August		918		$	16,394
September		903		$	16,280
October		920		$	16,432
November		860		$	15,850
December		899		$	16,238

Management believes that inspection cost is a mixed cost that depends on units produced.

Calculate the following using the high-low method:

Variable Cost per unit produced (round to 2 decimal place)	$
Overall Fixed Cost portion of Inspection Costs (round to 2 decimal place)	$
Cost equation for Inspection Costs (in the linear equation format)	Y=
Estimated Inspection costs when 973 units are produced (round to nearest whole dollar)	$

Answer 1

• All working forms part of the answer
• High Low Working

	Months	Units	Cost
High Level	May	951	$                   16,700.00
Low Level	Nov	860	$                   15,850.00
Difference		91	$                         850.00

• Calculation of Variable Cost

Difference in Cost	$                                                                   850.00
Difference in units	91
Variable cost per unit	$                                                                       9.34

• Calculation of Fixed Cost

At High Level, Total Cost = $ 16,700

At High Level, Total Variable cost = $ 9.34 x 951 = $ 8,882.34

Total Fixed Cost = $ 7,817.66 [or $ 7817.60 if at Low Level computed]

• Answers

Variable Cost per unit produced (round to 2 decimal place)	$ 9.34 per unit
Overall Fixed Cost portion of Inspection Costs (round to 2 decimal place)	$ 7,817.66 [or $ 7817.60]
Cost equation for Inspection Costs (in the linear equation format)	Y= $ 7,817.66 + $ 9.34 X
Estimated Inspection costs when 973 units are produced (round to nearest whole dollar)	$ 16,905 [7817.66 + (9.34 x 973)]