month----------------------issues published------------------total cost may-----

Question

month----------------------issues published------------------total cost
may---------------------------20,500---------------------------$20,960
june--------------------------22,300-----------------------------21,428
july---------------------------18,750-----------------------------20,505
august------------------------21,200-----------------------------21,395

a. using the high-low method, find variable cost per unit, total fixed costs, and the total cost equation.
b. what is the estimated cost for a month in which 22,000 issues are published?

Explanation / Answer

High-Low Method
Var cost pu = DIff in Cost/Diff in VOl = $3969/4050 = $0.98pu
Var cost pu = $0.98pu

SO Var cost = 21800*$0.98=$21364
Var cost =$21364

So Fixed cost = Tota cost - Var cost = 22464-21364 = $1100
Fixed cost = $1100

Similarly you can check for Low column

(1)Cost formula for Issues where X is the number of issues = $1100+ $0.98*No of issues
(2) For 19000 issues, Cost eqn is $1100 + $0.98*19000 = $19,720

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