Winston Co.manufactures office furniture.During the most productive month of the year,3,500 desks were manufactured at a total cost of $84,400.In its slowest month,the company made 1,100 desks at a cost of $46,000.Using the high-low method of cost estimation,total fixed costs are:
A)$56,000.
B)$28,400.
C)$17,600.
D)$29,900.

Question

Quizplus · Accepted Answer

Using the high-low method, we can calculate the variable cost per desk as follows:

Variable cost per desk = (Cost at highest activity level - Cost at lowest activity level) / (Highest activity level - Lowest activity level)
Variable cost per desk = ($84,400 - $46,000) / (3,500 - 1,100) = $19.20

We can then use this to calculate the total fixed costs as follows:

Total fixed costs = Total cost - (Variable cost per desk x Number of desks)
Total fixed costs = $84,400 - ($19.20 x 3,500) = $28,400

Therefore, the answer is B, $28,400.