Question

EX 19-7 High-low method Obj . 1 Ziegler Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows: Units Produced Total Costs 80,000 $25,100,000 92,000 27,206,000 120,000 32,120,000 A. Determine the variable cost per unit and the total fixed cost. B. Based on part (A), estimate the total cost for 115,000 units of production. REAL WORLD SHOW ME HOW A. $30.00 SHOW ME HOW EXCEL TEMPLATE A. $175.50 per unit

Answer 1

Answer:

A. Variable cost per unit = $175.50

Fixed costs = $11,060,000

Explanation:

Requirement A:

We know, Variable cost per unit under High low method = (Highest activity cost - Lowest activity cost)/(Highest units produced - Lowest units produced)

From the question,

Highest activity cost = $32,120,000

Lowest activity cost = $25,100,000

Highest units produced = 120,000

Lowest units produced = 80,000

Therefore, Variable cost per unit = $(32,120,000 - 25,100,000)/(120,000 - 80,000)

Variable cost per unit = $175.50

To determine fixed costs, you can either the highest activity costs and units or lowest activity costs and units. The answer will be same. (I have shown the answers by an excel sheet). Here, I use the highest activity costs and units

Fixed costs = Highest activity costs - (Variable costs per unit x highest units produced)

Fixed costs = $32,120,000 - ($175.50*120,000 units)

Fixed costs = $11,060,000

Requirement B:

If a company wants to determine the total costs, since it has the variable cost and fixed costs, it can find the costs easily.

Now, if Ziegler Inc. produces 115,000 units,

the total costs will be as follows:

Total costs = Fixed costs + (Number of units produced x variable costs)

From requirement A,

Variable cost per unit = $175.50

Fixed costs = $11,060,000

Total costs = $11,060,000 + (115,000 units x $175.50)

Total costs = $31,242,500

Therefore, the company's total costs will be $31,242,500 if the company wants to produce 115,000 units.

I have attached excel sheet image and excel sheet.