Question

Strait Co. manufactures office furniture. During the most productive month of the year, 3,200 desks were manufactured at a total cost of $82,800. In the month of lowest production, the company made 1,290 desks at a cost of $64,900. Using the high-low method of cost estimation, total fixed costs are a.$52,816 b.$82,800 c.$64,900 d.$17,900

Answer 1

Answer:

a.$52,816

Explanation:

Calculation to determine total fixed costs

First step

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

Variable cost per unit= ( 82,800-64,900)/(3,200-1,290)

Variable cost per unit= 17,900/1910

Variable cost per unit= $9.37 per unit

Now let determine the Fixed cost

Fixed cost = Highest activity cost - Highest activity x Variable cost per hour

Fixed cost= $82,800 - 3,200 x 9.37

Fixed cost= $82,800-$29,984

Fixed cost= $52,816

Therefore Using the high-low method of cost estimation, total fixed costs are $52,816