Question

Strait co. manufactures office furniture. during the most productive month of the year, 3,000 desks were manufactured at a total cost of $59,000. in the month of lowest production the company made 1,125 desks at a cost of $38,000. using the high-low method of cost estimation, total fixed costs are

Answer 1

Using High-Low method:x 1 = 1,125 ( low units ),  x 2 = 3,000 ( high units )y 1 = 38,000 ( low cost ), y 2 = 59,000 ( high cost ).Formula is: y = m x + b, where b represents Fixed costs.  m = ( y2 - y1 ) / ( x2 - x1 ) = ( 59,000 - 36,000 ) / ( 3,000 - 1,125 ) = 11.259,000 = 11.2 * 3,000 + bb = 59,000 - 33,600 = 25,400y = 11.5 x + 25,400Answer: Total fixed costs are $25,400.