Question

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		$	16			$	45			$	16			$	77
	6,500	units			16				30				15				61

If Shum produces 7,000 units, the total cost would be:

Answer 1

Given,

Total cost for 5000 Units = $77

Total cost for 6500 Units = $ 61

Below Qus is Solved as per Information given in Qus. Please also prefer Alternative Answer given below this answer.

Calculation of Total Cost at 7000 Units:-

Variable Cost per Unit = (Higest cost - Lowest Cost) / ( Higest Unit-Lowest Unit)

Variable Cost = ( 77 -61) / (6500-5000)

Variable Cost= 0.01066 Per Unit

Fixed Cost = Total cost - Variable Cost

Fixed Cost = 77 - ( 5000*0.010666)

Fixed Cost = $23.67

Variable for 7000 Units = 7000*0.010666

Variable Cost = $74.66

Therefor,

Total Cost for 7000 Units = Fixed cost + Variable Cost

= 23.67 + 74.66

= $98.33

  OR

As per my knowledge there must be correction in question.

Total Cost For 5000 units Must be = $61
Total Cost For 6500 units Must be = $77

According Fixed Cost and Total cost will Change:

Fixed Cost = 61 -(5000*0.010666)
= 7.67

Total Cost = Fixed Cost + Variable cost
= 7.67 + 74.66
= 82.33

Disclosure : Answer is given in Both ways. So you can choose the best answer as per the Requirement of Question.

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