Question

Manley Co. manufactures office furniture. During the most productive month of the year, 4,500 desks were manufactured at a total cost of $86,625. In its slowest month, the company made 1,800 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs a. are $61,875 b. are $33,875 c. are $24,750 d. cannot be determined from the data given

Answer 1

Answer:

c. $24,750

Explanation:

For computing the fixed cost first we have to determine the variable cost per hour by using high low method which is shown below:

Variable cost per hour = (High total cost - low total cost) ÷ (High desk manufactured - lower desk manufactured)

= ($86,625 - $49,500) ÷ (4,500 desk - 1,800 desk)

= $37,125 ÷ 2,700 desk

= $13.75

Now the fixed cost equal to

= High total cost - (High desk manufactured × Variable cost per hour)

= $ 86,625 - (4,500 desk × $13.75)

= $86,625 - $61,875

= $24,750