The following information on transported units and overall shipping costs was put together by Archer Company, a supplier of massive, specially made air conditioning units for commercial buildings. Weight of the units shipped: The shipping expense might increase if the weight of the shipment is very huge or very low.
What is the High-Low method ?
- High-Low method is a method of separating mixed costs into fixed and variable components by using just the high and low data points. high point cost- low point cost/ high point output- low point output. high and low points are identified by looking at the activity levels and not the costs.
Cost formula for shipping expense using the high-low method:-
It is computed using a few steps.
First we have to calculate fixed and variable costs.
Calculate variable cost per unit using identified high and low activity levels:
Variable cost= (Total cost of high activity- total cost of low activity) / (Highest activity unit- Lowest activity unit)
=(8820-2220) / (18-3)
=6600/15
=440/ unit
Calculator fixed costs
To calculate the total fixed costs, use either the high or low cost and the variable cost into the total cost formula:
Here, we using the highest cost of June month
Total cost= (Variable cost*units produced)+ Total fixed cost
8820=(440*18)+Total fixed cost
i.e., Total fixed cost= 900
Using all these Information,
Total cost= Total fixed cost+ (Variable cost* units produced)
Total cost= 900+(440 * units produced)
Hence, cost formula for shipping expense using the high-low method:-
Total cost= 900+(440 * units produced)
i.e., y= 900 + 440 x
Where y = total cost
x = units produced
(2)
What factors, other than the number of units shipped, are likely to affect the company’s total shipping expense?
Weight of the units shipped: The shipping expense might increase if the weight of the shipment is very huge or very low.
Distance travelled
Generally shipping cost vary with the distance travelled
To learn more about high-low method visit: brainly.com/question/14107176
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