Question

Ziegler Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:
Units Produced Total Costs
95,000 $28,460,000
110,000 31,010,000
127,000 33,900,000
a) Determine the variable cost per unit and the total fixed cost.
b) Based on part (a), estimate the total cost for 80,000 units of production.

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Units Produced Total Costs

95,000 $28,460,000

110,000 31,010,000

127,000 33,900,000

To calculate the variable and fixed costs, we need to use the following formula:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (33,900,000 - 28,460,000) / (127,000 - 95,000)

Variable cost per unit= $179 per unit

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 33,900,000 - (170*127,000)

Fixed costs= 12,310,000

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 28,460,000 - (170*95,000)

Fixed costs= 12,310,000

B) Units= 80,000

Total cost= 12,310,000 + 170*80,000= $25,910,000