Sterling Boat Company makes inexpensive aluminum fishing boats. Production is se

Question

Sterling Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During 2019, the high point in activity occurred in June when it produced 200 boats at a total cost of $720,000. The low point in production occurred in January when it produced 100 boats at a total cost of $450,000. Required a. Use the high-low method to estimate the amount of fixed cost incurred each month by Sterling Boat Company b. Determine the total estimated cost if 150 boats are made. a. Fixed Cost b. Total estimated cost

Explanation / Answer

Workings:

Units Total Cost

200 $720,000

100 $450,000

Difference 150 $270,000

Variable cost Per unit = $270,000 /100 = $2,700

Total cost for 100 boats =$450,000

Variable cost for 100 boats(2,700 x 100) =$270,000

Fixed cost =$180,000

Check: Variable cost for 200 boats = $2,700 x 200 = $540,000

Fixed cost = $180,000

Total cost for 200 boats = $720,000

Calculation of total cost for 150 boats:

Variable cost for 150 boats = $2,700 x 150 = $405,000

Fixed cost = $180,000

Total cost for 150 boats = $585,000

a Fixed cost $180,000 b Total estimated cost for 150 boats $585,000

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