Question

Archer Company is a wholesaler of custom-built air-conditioning units for commercial buildings. It gathered the following monthly data relating to units shipped and total shipping expense:

Month	Units Shipped	Total Shipping Expense
January	30	$	1,800
February	60	$	2,300
March	40	$	1,700
April	50	$	2,000
May	70	$	2,300
June	80	$	2,700
July	20	$	1,200

Required: Using the high-low method, calculate the equation of a cost line for the shipping expense for this company (Y = a + bX)

Answer 1

Solution

Y=

$ 700

+

$25

X

Working

$ 700 is the fixed cost and $25 per unit is variable cost as calculated below

		Cost	No. of activities
A	High Level	$             2,700.00	80
B	Low Level	$             1,200.00	20
C=A-B	Difference	$             1,500.00	60
A	Cost difference	$             1,500.00
B	No. of activities difference	60
C=A/B	Variable cost per unit	$                   25.00
		High Level	Low Level
A	No. of activities	80	20
B	Variable cost per unit	$              25.0000	$               25.0000
C=AxB	Total Variable cost	$             2,000.00	$                  500.00
D	Total cost	$             2,700.00	$              1,200.00
E=D-C	Total fixed cost	$                700.00	$                  700.00