In: Accounting
Shum Manufacturing, which uses the high-low method, makes a
product called Kwan. The company incurs three different cost types
(A, B, and C) and has a relevant range of operation between 2,500
units and 7,000 units per month. Per-unit costs at two different
activity levels for each cost type are presented below.
Type A | Type B | Type C | Total | |||||||||||||||
5,000 | units | $ | 23 | $ | 66 | $ | 23 | $ | 112 | |||||||||
7,500 | units | 23 | 44 | 22 | 89 | |||||||||||||
If Shum produces 7,000 units, the total cost would be:
Please show you calculated answer
Based on the information available in the question, we can answer as follows:-
Step 1:- Calculate Variable & Fixed cost using given information
Particulars | Part A | Part B | Part C | Total |
Lowest activity cost (5,000 units) | 115,000 | 330,000 | 115,000 | 560,000 |
Highest activity cost (7,500 units) | 172,500 | 330,000 | 165,000 | 667,500 |
Variable cost per unit | 23 | 0 | 20 | |
Fixed cost = Highest activity cost - Total variable cost at Highest activity | 0 | 330,000 | 15,000 |
Step 2:- Calculate the cost for 7,000 units
Statement showing cost for 7,000 units | ||||
Particulars | Part A | Part B | Part C | Total |
Variable cost | 161,000 | 0 | 140,000 | 301,000 |
Fixed Costs | 0 | 330,000 | 15,000 | 345,000 |
Total | 161,000 | 330,000 | 155,000 | 646,000 |
Please let me know if you have any questions via comments and all the best :)