High-Low Method Ziegler Inc. has decided to use the high-low method to estimate

Question

High-Low Method Ziegler 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: Units Produced 1,050 2,140 3,150 Total Costs $147.420 214,740 229,320 a. Determine the variable cost per unit and the total fixed cost. Variable cost: (Round to the nearest dollar.) Total fixed cost: b. Based on part (a), estimate the total cost for 1,510 units of production. per unit Total cost for 1,510 unlts:

Explanation / Answer

a. Variable cost per unit = $39 per unit Fixed cost = $                          1,06,470 Calculation of total fixed and variable cost as per high-low method: High Activity = 3,150 Low Activity = 1,050 Cost of units produced : High Activity = $ 2,29,320 Low Activity = $ 1,47,420 Variable cost per unit = Difference in total cost / Difference in activity = ($2,29,320 - $1,47,420) / (3,150 - 1,050) = ($8,100) / (2,100) = $39 per unit Fixed Cost = Total cost - (Variable cost per unit X Activity) As per high activity = $2,29,320 - (3,150 X $39) = $ 1,06,470 As per low activity = $1,47,420 - (1,050 X $39) = $ 1,06,470 b. Total cost for 1,510 units = $                          1,65,360 Computation of estimation of total cost for 1,510 unit of production Variable cost = (1,510 X $39) = $     58,890 Fixed cosr = $ 1,06,470 $ 1,65,360

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