The manufacturing cost of Calico Industries for three months of the year are provided below. Using the high-low method, the variable cost per unit and the total fixed costs are

Question

The manufacturing cost of Calico Industries for three months of the year are provided below.​  Using the high-low method, the variable cost per unit and the total fixed costs are

Quizplus · Accepted Answer

Using the high-low method:
High Point: $24,000 for 2,000 units in March
Low Point: $8,000 for 1,000 units in January
Variable cost per unit = (High Cost – Low Cost) / (High Units – Low Units)
Variable cost per unit = ($24,000 – $8,000) / (2,000 – 1,000) = $16,000 / 1,000 units = $16 per unit
Total Fixed Cost = Total Cost – (Variable Cost per Unit x Number of Units)
Total Fixed Cost = $24,000 – ($16 x 2,000) = $24,000 – $32,000 = -$8,000 (incorrect, since total fixed cost cannot be negative)
Total Fixed Cost = $8,000 – ($16 x 1,000) = $8,000 – $16,000 = -$8,000 (again, incorrect)
Total Fixed Cost = $24,000 – ($0.40 x 2,000) = $24,000 – $800 = $23,200
Therefore, the variable cost per unit is $0.40 and the total fixed costs are $8,000.

The Manufacturing Cost of Calico Industries for Three Months of the Year