Tucker Co.manufactures office furniture.During the most productive month of the year, 3,600 desks were manufactured at a total cost of $192,000.In its slowest month, the company made 1,200 desks at a cost of $72,000.Using the high-low method of cost estimation, total fixed costs per month are:
A) $120,000.
B) $12,000.
C) $72,000.
D) $11,600.

Question

Quizplus · Accepted Answer

Using the high-low method, we need to find the variable cost per unit first:
Variable cost per unit = (Cost at highest activity level - Cost at lowest activity level) / (Highest activity level - Lowest activity level)
= ($192,000 - $72,000) / (3,600 - 1,200)
= $120,000 / 2,400
= $50 per unit

Then, we can use either the highest or lowest activity level to find the total fixed cost:
Total cost = Fixed cost + (Variable cost per unit x Number of units)
Using the highest activity level:
$192,000 = Fixed cost + ($50 x 3,600)
$192,000 = Fixed cost + $180,000
Fixed cost = $192,000 - $180,000
Fixed cost = $12,000

Therefore, the total fixed cost per month is $12,000, which is option B.

Tucker CoManufactures Office Furniture