The Equipment Maintenance Department of Kason Inc. has incurred the following co

Question

The Equipment Maintenance Department of Kason Inc. has incurred the following costs during the past five months:

Month             Production        Total cost
July.                 1,000 units.      $45,550
August.            1,500.                   52,000
September.      2,100.                   61,500
October.           1,800.                    57,500
November.           750.                    41,250

Using the Hi-Lo method, determine the variable cost per unit, and the fixed cost per month.

Explanation / Answer

Variable cost per unit:

= (High level cost-Low level cost)/(High level production-Low level production)

= ($61,500-$41,250)÷(2,100-750)

= $15 per unit

Fixed costs:

= $61,500-$15×2,100

= $30,000

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