Frazier Manufacturing Company collected the following production data for the past month: $\begin{array}{rr}\text { Units Produced }&\text {Total Cost }\
1,600 & \$ 44,000 \
1,300 & 38,000 \
1,500 & 45,000 \
1,100 & 33,000
\end{array}$ If the high-low method is used, what is the monthly total cost equation?
A)Total cost = $8,800 + $22/unit
B)Total cost = $11,000 + $20/unit
C)Total cost = $0 + $30/unit
D)Total cost = $6,600 + $24/unit

Question

Quizplus · Accepted Answer

The high-low method is used to estimate the variable cost per unit and the fixed cost component of a total cost equation. The variable cost per unit is calculated by dividing the difference in total cost between the highest and lowest levels of production by the difference in units produced between those two levels. The fixed cost component is calculated by subtracting the variable cost per unit from the total cost at either the highest or lowest level of production.In this case, the highest level of production is 1,600 units and the lowest level of production is 1,100 units. The difference in total cost between these two levels is $45,000 - $33,000 = $12,000. The difference in units produced between these two levels is 1,600 units - 1,100 units = 500 units. Therefore, the variable cost per unit is $12,000 / 500 units = $24 per unit.The fixed cost component is calculated by subtracting the variable cost per unit from the total cost at either the highest or lowest level of production. In this case, we will use the highest level of production: $45,000 - ($24 per unit * 1,600 units) = $8,800.Therefore, the monthly total cost equation is: Total cost = $8,800 + $24 per unit.

Frazier Manufacturing Company Collected the Following Production Data for the Past