To follow is information about the units produced and total manufacturing costs for Snow Enterprises for the past six months.

-Using the high-low method, what is the monthly fixed manufacturing cost at Snow Enterprises?
A) $800
B) $11,000
C) $3,915
D) $1,985

Question

To follow is information about the units produced and total manufacturing costs for Snow Enterprises for the past six months.
 
-Using the high-low method, what is the monthly fixed manufacturing cost at Snow Enterprises?
A) $800 
B) $11,000 
C) $3,915 
D) $1,985

Quizplus · Accepted Answer

Using the high-low method, we need to first determine the variable cost per unit:

Variable cost per unit = (Total cost at highest level of activity - Total cost at lowest level of activity) / (Units produced at highest level of activity - Units produced at lowest level of activity)

Variable cost per unit = ($48,270 - $36,810) / (9,000 - 6,000) = $3.72

Next, we can use either the highest or lowest level of activity to find the fixed cost component. Using the lowest level of activity:

Total cost = Fixed cost + (Variable cost per unit x Units produced)

$36,810 = Fixed cost + ($3.72 x 6,000)

Fixed cost = $3,915

Therefore, the monthly fixed manufacturing cost at Snow Enterprises is $3,915 (choice C).

To Follow Is Information About the Units Produced and Total