A Company manufactures a product A. The company estimates the cost function for the total costs. The cost driver is number of units. The following informations were collected: Month Units Total CostsJanuary 3,560 $242,400February 3,800 $252,000March 4,000 $260,000April 3,600 $244,000May 3,200 $228,000June 3,040 $221,600 Compute a cost function using the high-low method.

TCHA =Total cost of high activity, HAU=Highest activity unit· Variable Cost = (TCHA−Total Cost of Low Activity) / (HAU - Lowest Activity Unit) = (260000-220000) / (4000-3040) = 40.625· Total Cost = (VC * Units Produced) + Total Fixed Cost· Fixed cost = Highest activity cost – (Variable cost per unit x Highest activity units) = 260000-(40.625*4000) = 97500

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In: Accounting

A Company manufactures a product A. The company estimates the cost function for the total costs.

A Company manufactures a product A. The company estimates the cost function for the total costs. The cost driver is number of units. The following informations were collected:

Month Units Total Costs

January 3,560 $242,400

February 3,800 $252,000

March 4,000 $260,000

April 3,600 $244,000

May 3,200 $228,000

June 3,040 $221,600

Compute a cost function using the high-low method.

Expert Solution

TCHA =Total cost of high activity, HAU=Highest activity unit

· Variable Cost = (TCHA−Total Cost of Low Activity) / (HAU - Lowest Activity Unit) = (260000-220000) / (4000-3040) = 40.625

· Total Cost = (VC * Units Produced) + Total Fixed Cost

· Fixed cost = Highest activity cost – (Variable cost per unit x Highest activity units) = 260000-(40.625*4000) = 97500

ekkarill92 answered 1 year ago

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