Question

Williams Inc. produces fluorescent lightbulbs for commercial use. The accounting manager is attempting to estimate the total cost for the next quarter using the high-low method. He has compiled data and found the high and low costs are $92,500 and $60,100, respectively, and the associated cost drivers are 7,000 and 3,400 packs, respectively. What is the value for b (the variable cost per unit)? What is the value for a (the fixed quantity)?

Answer 1

Answer:

Variable cost per unit is $9 and the fixed cost is $29,500

Explanation:

The computation of the variable and fixed components are shown below:

For variable cost per unit, it equals to

= (High cost - low  cost) ÷ (High associated cost drivers - low associated cost drivers)

= ($92,500 - $60,100) ÷ (7,000 - 3,400)

= $32,400 ÷ 3,600

= $9 per unit

Now the fixed component equal to

= (High cost) - (variable cost per unit × high associated cost drivers )

= $92,500- ($9 per unit × 7,000)

= $92,500- $63,000

= $29,500