Question

Frazier Manufacturing Company collected the following production data for the past month: Units Produced Total Cost 1,600 $66,000 1,300 57,000 1,500 67,500 1,100 49,500 If the high-low method is used, what is the monthly total cost equation? A. Total cost = $0 + $45/unit B. Total cost = $13,200 + $33/unit C. Total cost = $16,500 + $30/unit D. Total cost = $9,900 + $36/unit

I know the answer is $13,200+33/unit. But I do not see how the math is done, or I get 34. Could someone break down each step of the math for me please & thank you.

Answer 1

Answer:-a)- Total Fixed costs =$13200

b)- Variable cost per unit =$33 per unit

Explanation:-

High-Low Method:-

Variable cost per unit (x) is calculated using the following formula:

Variable cost per unit=a2-a1/b2-b1

Where,
a2 is the total cost at highest level of activity;
a1 is the total cost at lowest level of activity;
b2 are the number of units at highest level of activity; and
b1 are the number of units at lowest level of activity

Total Fixed Cost

Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:

Total Fixed Cost = a2 – x*b2 = a1 – x*b1

We have,
at highest activity: b₂ = 1600; a₂ = $66000
at lowest activity: b₁ = 1100; a₁ =$49500

Variable Cost per unit = ($66000? $49500) ÷ (1600 units – 1100 units)  

                                     = $16500/500 units =$33 per unit
Total Fixed Cost = $66000 ? ($33 per unit*1600 units)

= $66000 – $52800 =$13200