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X Company has the following data from 2016 and 2017:

	2016	2017
Total costs	$260,600	$411,850
Units produced	32,000	57,000

Expected production in 2018 is 43,800 units. Using the high-low method with the 2016 and 2017 data to determine the parameters of the cost function, what are estimated total costs in 2018?

Expert Solution

Note - 1	Identification of variable cost per unit
	Particulars	2016	2017	Change from 2016 to 2017
	Total Cost	$ 2,60,600	$ 4,11,850	$ 1,51,250
	Unit Produced	32000	57000	25000

	Identification of variable cost per unit =	Change in total cost	=	151250	=	$ 6.05	Per unit
	Identification of variable cost per unit =	Change in total unit produced	=	25000	=	$ 6.05	Per unit

Note - 2	Identification fixed cost	Amount
	Total Cost of 2017	$ 4,11,850.00	(a)
	Less: Variable cost (57000*6.05)	$ 3,44,850.00	(b)
	Fixed Cost (a-b)	$ 67,000.00

Answer	Estimated total cost for 2018
	Total expected unit produced in 2018	43,800	Unit
	Variable Cost (43800*6.05)	$ 2,64,990.00	refer note - 1
Add:	Fixed Cost	$ 67,000.00	refer note - 2
	Total Cost for 2018	$ 3,31,990.00

ekkarill92 answered 1 year ago

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