Question

Fromme's Frocks has the following machine hours and production costs for the last six months of last year:

Month Machine Hours Production Cost July 16,600 $ 12,155 August 15,100 12,400 September 13,100 9,740 October 17,100 12,240 November 16,400 11,772 December 13,700 9,970 If Fromme expects to incur 12,200 machine hours in January, what will be the estimated total production cost using the high-low method? $8,732.63. $9,177.50. $7,625.00. $19,865.00.

Answer 1

• High Low Working

	Months	Units	Cost
High Level	Oct	17,100	$                   12,240.00
Low Level	Sept	13,100	$                     9,740.00
Difference		4,000	$                     2,500.00
A	Difference in Cost		$                     2,500.00
B	Difference in units		4,000
C = A/B	Variable cost per unit		$                           0.625
Working		High Level	Low Level
A	Total Cost	$                 12,240.00	$                     9,740.00
B	Total Units	17100	13100
C	Variable cost per unit	$                           0.625	$                             0.625
D = B x C	Total Variable cost	$                 10,687.50	$                     8,187.50
E = A - D	Total Fixed Cost	$                   1,552.50	$                     1,552.50

• Answer calculation
  Total Estimated Production cost = $ 1552.50 + ($0.625 x 12200 machine hours)
  = 1552.50 + 7625
  = $ 9,177.50
• Correct Answer = Option #2: $ 9177.50