[The following information applies to the questions displayed below.] Archer Com

Question

[The following information applies to the questions displayed below.]

Archer Company is a wholesaler of custom-built air-conditioning units for commercial buildings. It gathered the following monthly data relating to units shipped and total shipping expense:

2. Using the high-low method, estimate the cost formula for shipping expense.

variable shipping expense per unit?

Fixed shipping expense per month?

Month Units Shipped Total Shipping Expense January 3 $ 1,900 February 6 $ 2,400 March 4 $ 1,800 April 5 $ 2,100 May 7 $ 2,400 June 8 $ 3,400 July 2 $ 1,300

Explanation / Answer

Answer:

Variable Shipping Expenses per unit = (Highest cost - Lowest Cost) / (Highest Units - Lowest Units)

Thus, Variable costs per unit = 2100 /6 = $350

Total costs = Fixed Cost + (Variable cost per unit x No. of units)

Highest cost 3400 Lowest Cost 1300 Difference 2100 Highest units 8 Lowest Units 2 Difference 6

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