The following information was available about supplies cost for the second quarter of the year: $$\begin{array} { c c c }
\text { Month } & \text { Production Volume } & \text { Supplies Cost } \
\hline\text { April } & 700 & \$ 3,185 \
\text { May } & 1,600 & 7,100 \
\text { June } & 600 & 2,700
\end{array}$$ Using the high-low method,what is the estimate of supplies cost at 1,000 units of production?
A)$2,700
B)$4,460
C)$4,900
D)$7,100

Question

The following information was available about supplies cost for the second quarter of the year: $$\begin{array} { c c c } 
\text { Month } & \text { Production Volume } & \text { Supplies Cost } \
\hline\text { April } & 700 & \$ 3,185 \
\text { May } & 1,600 & 7,100 \
\text { June } & 600 & 2,700
\end{array}$$ Using the high-low method,what is the estimate of supplies cost at 1,000 units of production?
A)$2,700
B)$4,460
C)$4,900
D)$7,100

Quizplus · Accepted Answer

The high-low method involves identifying the highest and lowest activity levels and using their costs to determine the variable cost per unit and the fixed cost. The variable cost per unit is calculated by dividing the difference in costs by the difference in activity levels. The formula for estimating total cost at a given activity level is: Total Cost = Fixed Cost + (Variable Cost per Unit * Activity Level).1. Identify high and low activity levels:   - High: May (1,600 units, $7,100)   - Low: June (600 units, $2,700)2. Calculate variable cost per unit:   - Variable Cost per Unit = ($7,100 - $2,700) / (1,600 - 600) = $4,400 / 1,000 = $4.40 per unit3. Calculate total fixed cost:   - Fixed Cost = Total Cost - (Variable Cost per Unit * Activity Level)   - Using the high activity level for calculation: $7,100 - ($4.40 * 1,600) = $7,100 - $7,040 = $604. Estimate supplies cost at 1,000 units:   - Total Cost = Fixed Cost + (Variable Cost per Unit * Activity Level) = $60 + ($4.40 * 1,000) = $60 + $4,400 = $4,460

The Following Information Was Available About Supplies Cost for the Second