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9 January, 06:35

Frazier Manufacturing Company collected the following production data for the past month: Units Produced Total Cost 1,600 $66,000 1,300 57,000 1,500 67,500 1,100 49,500 If the high-low method is used, what is the monthly total cost equation? a. Total cost = $9,900 + $36/unit b. Total cost = $16,500 + $30/unit c. Total cost = $0 + $45/unit d. Total cost = $13,200 + $33/unit

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  1. 9 January, 06:37
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    d. Total cost = $13,200 + $33/unit

    Explanation:

    Variable cost per unit (x) is given by this following formula:

    Variable cost per unit = a2-a1/b2-b1

    Where,

    a2 is the total cost at highest level of activity;

    a1 is the total cost at lowest level of activity;

    b2 are the number of units at highest level of activity;

    b1 are the number of units at lowest level of activity.

    then;

    Total fixed cost (a) is given by subtracting total variable cost from total cost:

    Total Fixed Cost = a2 - x*b2

    = a1 - x*b1

    We have,

    at highest activity: b2 = 1600; a2 = $66000

    at lowest activity: b1 = 1100; a1 = $49500

    Variable Cost per unit = ($66000? $49500) : (1600 units - 1100 units) = $16500/500 units

    = $33 per unit

    Total Fixed Cost = $33 per unit*1600 units

    = $66000

    = $66000 - $52800

    = $13200

    Therefore, The Total cost is $13,200 + $33/unit.
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