Question

Perez 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 year 2, the high point in activity occurred in June when it produced 202 boats at a total cost of $156,800. The low point in production occurred in January when it produced 32 boats at a total cost of $48,000. Required Use the high-low method to estimate the amount of fixed cost incurred each month by Perez Boat Company. Determine the total estimated cost if 160 boats are made.

Answer 1

Answer:

Total cost= $129,920

Explanation:

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

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

Variable cost per unit= (156,800 - 48,000) / (202 - 32)

Variable cost per unit= $640 per boat

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

Fixed costs= 156,800 - (640*202)

Fixed costs= $27,520

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

Fixed costs= 48,000 - (640*32)

Fixed costs= $27,520

Total cost= 27,520 + 640*x

x= number of boats

Now, for 160 boats:

Total cost= 27,520 + 640*160

Total cost= $129,920