Question
In: Finance
A company has the following historic pattern of total manufacturing costs versus total number of products...
A company has the following historic pattern of total manufacturing costs versus total number of products produced: MONTH UNITS TOTAL COSTS PRODUCED January 12,500 $430,000 February 17,000 $490,000 March 19,000 $512,000 April 10,000 $400,000 May 14,000 $434,000 June 9,000 $360,000 July 20,000 $550,000 August 21,000 $525,000 September 24,000 $605,000 October 23,000 $589,000 November 28,000 $702,000 December 18,000 $496,000 1) From this information, what are my approximate fixed costs and what is my estimated variable cost per product produced? (20 POINTS)
Fixed Costs =
Variable Cost per Unit =
Solutions
Expert Solution
We have following information
| Months | Units | Total cost |
| Jan | 12500 | 430000 |
| Feb | 17000 | 490000 |
| March | 19000 | 512000 |
| April | 10000 | 400000 |
| May | 14000 | 434000 |
| June | 9000 | 360000 |
| July | 20000 | 550000 |
| Aug | 21000 | 525000 |
| Sept | 24000 | 605000 |
| Oct | 23000 | 589000 |
| Nov | 28000 | 702000 |
| Dec | 18000 | 496000 |
We can find fixed cost and variable cost per unit by using High low method
As per high low method . Variable cost per unit = Total cost of highest activity - Total cost of lowest activity / Highest Activity units - Lowest activity units
Highest Activity units = 28000 units
Total cost of highest activity = 702000 $
Lowest activity units = 9000 units
Total cost of lowest activity = 360000 $
Thus Variable cost per unit = 702000 - 360000 / 28000 - 9000
= 342000 / 19000
= 18 $
Thus Variable cost per unit = $18
Now Total cost = Fixed cost + Variable cost
702000 = Fixed cost + (28000*18)
702000 = Fixed cost + 504000
Thus fixed cost = 198000 $
Ans)
Fixed cost = 198000 $
Variable cost per unit = $ 18
jeff jeffy answered 1 year agoRelated Solutions
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