Question

Strait Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $82,700. In the month of lowest production the company made 1,240 desks at a cost of $63,300. Using the high-low method of cost estimation, total fixed costs are a. $82,700 b. $19,400 c. $52,670 d. $63,300

Answer 1

Answer:

c. $52,670

Explanation:

The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

Variable cost per desk = (High cost - low cost) ÷ (Highest production - lowest production)

= ($82,700 - $63,300) ÷ (3,500 desk - 1,240 desk)

= $19,400 ÷ 2,260 desk

= $8.58

Now the fixed cost equal to

= High cost - (High production × Variable cost per desk)

= $82,700 - (3,500 desk × $8.58)

= $82,700 - $30,030

= $52,670