Question

Zachary Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During 2019, the high point in activity occurred in June when it produced 208 boats at a total cost of $160,540. The low point in production occurred in January when it produced 39 boats at a total cost of $49,000. Required Use the high-low method to estimate the amount of fixed cost incurred each month by Zachary Boat Company. Determine the total estimated cost if 160 boats are made.

Answer 1

Answer:

a) $23,260 b) = $128,860

Explanation:

The question is divided into two parts

part A) calculate the amount of fixed cost incurred each month by Zachery Boat Company

Step 1: We calculate the Variable Cost per unit as follows:

Variable Cost per unit= The Changes in total cost  / the change in volume

= ($160,540 - $49,000) / (208 boats- 39 boats )

= $111,540 /  169 Boats

= $660 per boat

Step 2: Now determine the fixed cost

Fixed cost = The total cost incurred (high) - the variable cost( 208 boats x $660 per boat)

= $160, 540 - $137,280

= $23,260

Part b) We calculate the total estimated costs if 160 boats are made

= Total costs = The fixed cost (determined above) + The variable cost (160 boats x $660 per boat)

= $23,260 + $105,600

= $128,860