Question

High-Low Method, Cost Formulas

Answer 1

Answer:

Results are below.

Explanation:

To calculate the variable and fixed costs, we need to use the following formula:

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

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

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

Depreciation:

Depreciation is a 100% fixed cost. It does not vary with production levels.

Indirect labor:

Variable cost per unit= (105,600 - 66,000) / (16,000 - 5,000)

Variable cost per unit= $3.6

Fixed cost= 105,600 - (3.6*16,000)

Fixed cost= $48,000

Fixed cost= 66,000 - 3.6*5,000

Fixed cost= $48,000

Total cost= 48,000 + 3.6x

Fuel and oil for forklift:

Variable cost per unit= (11,360 - 3,550) / (16,000 - 5,000)

Variable cost per unit= $0.71

Fixed cost= 11,360 - (0.71*16,000)

Fixed cost= 0

Fixed cost= 3,550 - 0.71*5,000

Fixed cost= $0

Total cost= 0.71x