Chap Felix & Co. reports the following information about its sales and cost of s

Question

Chap Felix & Co. reports the following information about its sales and cost of sales Cost of Cost of Sales 0 2,500 400 3,100 800 3,700 1,200 4,300 1,600 4,900 Sales Period Units Sold 6 7. 2,000 2,400 2,800 3,200 3,600 7,300 5,500 6,100 6,700 10 7,900 2 u Hint: (Draw an estimated line of cost behavior using a scatter diagram, offline.) Required: (a) Use the high-low method to calculate the fixed component of the cost of sales. (Omit the "$" sign in Sel your response.) Fixed cost (b) Use the high-low method to calculate the variable componeht of the cost of sales. (Round your answer to 2 decimal places. Omit the "$ sign in your response.) Variable cost 1.50 per unit Hints References 8 un 2 un

Explanation / Answer

a) Fixed Cost is the cost that occurs independent of no. of units sold. In this case even when no units are sold, cost of $2,500 (in period 1) have incurred. This cost of $2,500 is Fixed Cost.

Fixed cost can also be calculated by high low method (period 2) = Total cost - Variable cost

= 3,100 - (400 units*1.50 per unit) = 3,100 - 600 = $2,500

b) Calculation of Variable cost per unit = Change in Cost of sales/Change in units sold

= ($3,100-$2,500)/(400-0) = $600/400 = $1.50 per unit

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