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29 August, 20:47

Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company. Month Cost Units January €4,890 4,100 February 4,024 3,200 March 6,480 5,300 April 8,840 7,500 May 5,800 4,800 June 7,336 6,600 Gallup Company uses the high-low method to analyze mixed costs. a. How would the cost function be stated? b. What is the estimated total cost at an operating level of 5,000 units?

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  1. 29 August, 20:51
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    Instructions are listed below.

    Explanation:

    Giving the following information:

    Month Cost Units

    January $4,890; 4,100 units

    February $4,024; 3,200 units

    March $6,480; 5,300 units

    April $8,840; 7,500 units

    May $5,800; 4,800 units

    June $7,336; 6,600 units

    Gallup Company uses the high-low method to analyze mixed costs.

    We need to use the following formula:

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

    Variable cost per unit = (8,840 - 4,024) / (7,500 - 3,200)

    Variable cost per unit = 1.12 per unit

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

    Fixed costs = 8,840 - (1.12*7,500) = 440

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

    Fixed costs = 4,024 - (1.12*3,200) = 440

    A) Cost function:

    Total cost = 1.12*x + 440

    B) Units = 5,000

    Total cost = 1.12*5,000 + 440 = $6,040
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