Question

Ingram Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $84,400. In its slowest month, the company made 1,100 desks at a cost of $46,000. Using the high-low method of cost estimation, what is the variable cost per unit at the 3,500 level of operations?

Answer 1

The average variable cost per unit is
.. (84400 -46000)/(3500 -1100) = 38400/2400 = 16

The variable cost per unit is estimated at $16.

Answer 2

The cost of manufacturing $x$ units is

$C=ax+b$, where $a$ cost per unit and $b$ fixed cost.

Given that

$3500a+b=84400\\ 1100a+b=46000$

Subtract the second equation from the second,

$(3500-1100)a=84400-46000\\ a=16$

The variable cost per unit is $\ 16$.