Question

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 101,500 $28,022,500 118,500 30,997,500 131,500 33,272,500
a. Determine the variable cost per unit and the total fixed cost.
Variable cost (Round to two decimal places.) $ per unit
Total fixed cost $
b. Based on part (a), estimate the total cost for 115,000 units of production.
Total cost for 115,000 units $

Answer 1

Answer:

Results are below.

Explanation:

Giving the following information:

Units Produced Total Costs

101,500 $28,022,500

118,500 30,997,500

131,500 33,272,500

To calculate the fixed and variable costs, we need to use the high-low method:

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

Variable cost per unit= (33,272,500 - 28,022,500 ) / (131,500 - 101,500)

Variable cost per unit= $175

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

Fixed costs= 33,272,500 - (175*131,500)

Fixed costs= $10,260,000

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

Fixed costs= 28,022,500 - (175*101,500)

Fixed costs= $10,260,000

Now, the total cost for 115,000 units:

Total cost= 10,260,000 + 175*115,000

Total cost= $30,385,000