ABC Co.manufactures pens.During the most productive month of the year, 3,650 pens were manufactured at a total cost of $84,550.During its slowest month, the company made 1,250 pens at a cost of $46,150.Calculate the total fixed cost using the high-low method of cost estimation.

Question

Quizplus · Accepted Answer

Step 1: Find the variable cost per unit
Variable cost per unit = (Total cost at high activity level - Total cost at low activity level) / (High activity level - Low activity level)
= ($84,550 - $46,150) / (3,650 - 1,250)
= $38,400 / 2,400
= $16 per unit

Step 2: Calculate the total fixed cost
Total cost = Fixed cost + Variable cost per unit x Number of units
Using the high activity level data:
$84,550 = Fixed cost + ($16 x 3,650)
Fixed cost = $84,550 - $58,400
Fixed cost = $26,150

Therefore, the total fixed cost using high-low method is $26,150, which is option C.

ABC CoManufactures Pens