The following are monthly totals taken from the log of laser printer used by the
ID: 2424184 • Letter: T
Question
The following are monthly totals taken from the log of laser printer used by the Hardcopy Inc. Cost was based on a flat fee plus declining cost per copy made after a minimum number of copies had been made each month.
Month # of Copies Made Total Cost
September 23,000 10,250
October 35,400 11,300
November 38,000 12,100
December 48,600 18,500
Using the high low method determine: (a) the variable cost per copy (b) fixed costs for Sept. & Dec.
Explanation / Answer
Part a)
The variable cost per copy can be calculated using the following formula for high low method.
High Low Method = (Total Cost at Highest Activity Level - Total Cost at Lowest Activity Level)/(Highest Activity Level - Lowest Activity Level)
___________
Here, Total Cost at Highest Activity Level = $18,500, Total Cost at Lowest Activity Level = 10,250, Highest Activity Level = 48,600 and Lowest Activity Level = 23,000
Using these values in the above formula, we get,
Variable Cost Per Copy = (18,500 - 10,250)/(48,600 - 23,000) = $.32 per copy (the answer has been rounded off to 2 decimal places)
___________
Part b)
The fixed cost can be calculated with the use of following equation:
Total Fixed Cost = Total Cost - Total Variable Cost
___________
Using the variable cost per copy calculated above and information provided in the question, we get,
Total Fixed Cost (Sept.) = 10,250 - 23,000*.32 = $2,837.89 or $2,838 (the variable cost per copy has been taken in its original value in the calculation)
Total Fixed Cost (Dec.) = 18,500 - 48,600*.32 = $2,837.89 or $2,838 (the variable cost per copy has been taken in its original value in the calculation)
The fixed cost will remain constant irrespective of the level of production/activity.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.