Exercise 21-7 Name: Section: Score: 0% Answers are entered in the cells with gra

Question

Exercise 21-7 Name: Section: Score: 0% Answers are entered in the cells with gray backgrounds Cells with non-gray backgrounds are protected and cannot be edited. An asterisk () will appear to the right of an incorrect en a. Difference in Total Costs Difference in Production Variable Cost per Unit = Based on highest level: Total cost Units produced x Variable cost per unit Total variable cost Total fixed cost 7 b. Based on 12,000 units: Total variable cost Total fxed cost (from above) Total cost 5 6

Explanation / Answer

a)- High-Low Method:-

Variable cost per unit (x) is calculated using the following formula

Variable cost per unit=a2-a1/b2-b1

Where,
a2 is the total cost at highest level of activity;
a1 is the total cost at lowest level of activity;
b2 are the number of units at highest level of activity; and
b1 are the number of units at lowest level of activity

Total Fixed Cost

Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:

Total Fixed Cost = a2 – x*b2 = a1 – x*b1

We have,

at highest activity: b2 = 22500; a2 = $920000
at lowest activity: b1 = 10000;   a1 = $700000

Variable Cost per unit = ($920000 $700000) ÷ (22500 10000)  

                                     = $220000/12500 rooms =$17.6 per unit
Total Fixed Cost = $920000 ($17.6 × 22500) = $920000 – $396000 =$524000

b)- Total cost of 14000 units= Variable cost + Fixed cost

                                           =(14000 units*$17.6 per unit)+$524000

                                          =$246400+$524000

                                           =770400        

Variable cost per unit=a2-a1/b2-b1

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.