Question

Andy Hiking produces backpacks. In the previous year, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 5,900 backpacks at a total cost of $207,250. In January, it produced 4,400 backpacks at a total cost of $97,000. Using the high/low method, the average variable cost per of producing a backpack was:

Answer 1

Answer:

Variable cost= $73.50

Explanation:

The high low method is used to get the fixed and variable cost of a business activity given limited data. It involves taking the highest and lowest points, then comparing the total cost at these points.

We use the following formula

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

Variable cost= (207,250- 97,000)/ (5,900-4,400)

Variable cost= 110,250/ 1,500

Variable cost= $73.50