Question
In: Accounting
High-Low Method The manufacturing costs of Ackerman Industries for the first three months of the year...
High-Low Method
The manufacturing costs of Ackerman Industries for the first three months of the year follow:
| Total Costs | Units Produced | |||
| January | $465,670 | 3,260 | units | |
| February | 319,680 | 1,850 | ||
| March | 497,280 | 5,550 | ||
Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost. Round all answers to the nearest whole dollar.
| a. Variable cost per unit | $ |
| b. Total fixed cost | $ |
Solutions
Expert Solution
Answer- a)-Variable Cost per unit = $48 per unit.
b)- Total fixed costs =$230880.
Explanation:-High-Low Method:-
Variable Cost per Unit
Variable cost per unit (b) is calculated using the following formula:
|
Variable cost per unit = (Y2-Y1)/(X2-X1) |
|
Where,
y2 is the total cost at highest level of activity;
y1 is the total cost at lowest level of activity;
x2 are the number of units/miles/ labor ,machine hours etc. at
highest level of activity; and
x1 are the number of units/miles/ labor, machine hours etc. at
lowest level of activity
The variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of machine hours).
Total Fixed Cost
Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:
|
Total Fixed Cost = (y2 – b)*x2 = (y1 – b*x1) |
We have,
at highest activity: x2 = 5550 units;
y2 = $497280
at lowest activity: x1 = 1850 units;
y1 = $319680
Variable Cost per unit = ($497280-$319680) /(5550 units – 1850 units)
= $177600/3700 units
= $48 per unit
Fixed costs = $497280 - (5550*$48 per unit)
= $497280-$266400
= $230880
ekkarill92 answered 1 year agoRelated Solutions
High-Low Method The manufacturing costs of Ackerman Industries for the first three months of the year...
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Using the high-low method, determine (a) the variable cost per
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