Question

Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year's data are presented below: Month Units Produced Administrative Costs January 32,500 $ 24,288 February 37,700 27,720 March 24,700 17,820 April 40,300 30,360 May 49,400 37,290 June 42,900 29,040 July 53,300 32,670 August 45,500 30,030 September 26,000 20,460 October 48,100 34,320 November 61,100 40,920 December 54,600 36,630 Total 516,100 $ 361,548 Average 43,008 $ 30,129
What is the equation for administrative costs using the high-low method?

Answer 1

Answer:

Total cost= 2,145 + (0.63462*x)

Explanation:

Giving the following information:

Month - Units Produced - Administrative Costs

January: 32,500 units $24,288

February: 37,700 units $27,720

March: 24,700 units  $17,820

April: 40,300 units $30,360

May: 49,400 units $37,290

June: 42,900 units $29,040

July: 53,300 units $32,670

August: 45,500 units $30,030

September: 26,000 units $20,460

October: 48,100 units $34,320

November: 61,100 units $40,920

December: 54,600 units $36,630

To determine the equation for administrative costs using the high-low method, we need to use the following formulas:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (40,920 - 17,820) / (61,100 - 24,700)= $0.63462 per unit

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 40,920 - (0.63462*61,100)= $2,145

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 17,820 - (0.63462*24,700)=  $2,145

administrative costs formula:

Total cost= 2,145 + (0.63462*x)