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Cypress, which uses the high-low method, had an average cost per unit of $5 at its...

Cypress, which uses the high-low method, had an average cost per unit of $5 at its lowest level of activity when sales equaled 10,000 units and an average cost per unit of $3.25 at its highest level of activity when sales equaled 24,000 units. Cypress would estimate fixed costs as:

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Expert Solution

Cypress would estimate fixed costs as $ 30,000

Working:

a.
Total Costs at lowest level of sales        10,000 x $       5.00 = $       50,000
Total Costs at highest level of sales        24,000 x $       3.25 = $       78,000
b. As per high-low method,
Variable cost per unit = (Total Costs at highest level of activity-Total Costs at lowest level of activity)/(Highest level of activity-Lowest level of activity)
= (78000-50000)/(24000-10000)
= $ 2.00 per unit
c. Now,
At highest level,
Total Costs $ 78,000
Less:variable costs      24,000 x $         2.00 = $ 48,000
Fixed Costs $ 30,000
At Lowest level,
Total Costs $ 50,000
Less:variable costs      10,000 x $         2.00 = $ 20,000
Fixed Costs $ 30,000
So, Fixed costs would be $ 30,000

ekkarill92 answered 2 years ago
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