Question

Handy Hiking produces backpacks. In the previous year, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 4,000 backpacks at a total cost of $110,000. In January, it produced 2,500 backpacks at a total cost of $87,500. Using the high/low method, the average variable cost per of producing a backpack was:

Answer 1

Answer:

$15 per backpack

Explanation:

The  average variable cost per of producing a backpack by using the high low method is shown below:

Variable cost per backpack = (High total cost - low total cost) ÷ (High backpack produced - low backpack produced )

= ($110,000- $87,500) ÷ (4,000 backpack produced   - 2,500 backpack produced  )

= $22,500 ÷ 1,500 backpack produced  

= $15 per backpack