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Shatner Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

unit produced                    total costs

7500                                   600000
12500                                    725000
20000 800000



1.Determine the variable cost per unit and the fixed cost.

Variable cost: ___________
(Round to nearest dollar.) _____________ $ per unit
Total fixed cost: $ ____________.

2. Based on part 1, estimate the total cost for 10,000 units of production.
Total cost for 10,000 units: $ _____________.

Explanation / Answer

Total cost= Fixed Cost+ b * No. of units produced Here b is the VC per unit Finding out the High and low for the data: Maximum number of units produced = 20000 Cost=800000 Minimum number of units produced = 7500 Cost =600000 Difference: 20000-7500=12500 Cost difference = 800000-600000=200000 b= 200000/12500 = 16 1. Variable Cost = $16 per unit for high case Variable cost = 20000 x 16 =320000 Fixed Cost = 800000-320000=$480000 2. Fixed Cost will remain the same i.e, $480000 Variable Cost will be $160000 (16 x 10000) So total cost = $640000

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