Sterling Boat Company makes inexpensive aluminum fishing boats. Production is se

Question

Sterling Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During 2019, the high point in activity occurred in June when it produced 200 boats at a total cost of $720,000. The low point in production occurred in January when it produced 100 boats at a total cost of $450,000.

Use the high-low method to estimate the amount of fixed cost incurred each month by Sterling Boat Company.

Determine the total estimated cost if 150 boats are made.

Explanation / Answer

In this question we have been given the total costs by using the high low method we will have to calculate variable cost per unit and fixed costs to estimate the total cost of 150 boats

Variable cost per unit = Highest Activity Cost - Lowest Activity Cost/ Highest Activity Units - Lowest Activity Units Variable cost per unit = $720000 - $ 450000/(200-100) Variable cost per unit = $ 2700 Fixed Cost = Highest Activity Cost - (Variable cost per unit * Highest Activity units) Fixed Cost = $ 720000 - (2700*200) Fixed Costs = $ 180000 Estimated Costs of 150 boats Variable Costs ( 2700*150) $405,000 Fixed Costs $180,000 Total Costs $585,000

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