Joe, Jeff and Jerry Frank own Frank Brothers Farm, a seed company specializing in seed corn. At their weekly meeting they tried to calculate the portion of the farm's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of bushels of seed corn that has been sold reached its peak in May, when the total monthly overhead costs totaled $290,000 for 90,000 bushels of seed corn sold. The lowest number of bushels sold in the last twelve months occurred in December, when total overhead costs were $70,000 for 10,000 bushels sold. What is the fixed portion of the monthly overhead expenses?
A)$42,500
B)$262,500
C)$247,500
D)$70,000

Question

Quizplus · Accepted Answer

The fixed portion of the overhead expenses can be calculated using the high-low method. The variable cost per bushel is ($290,000 - $70,000) / (90,000 - 10,000) = $2.75 per bushel. The fixed cost is then calculated by subtracting the total variable cost at either the high or low point from the total cost. Using the low point: $70,000 - ($2.75 * 10,000) = $42,500.

Joe, Jeff and Jerry Frank Own Frank Brothers Farm, a Seed