Hardigree Insurance has collected the following information over the last six months. $\begin{array}{ccc}\text { Month }& \text { Units produced } &\text { Total costs }\
\text { March } & 2,000 & \$ 6,700 \
\text { April } & 3,200 & 9,400 \
\text { May } & 2,200 & 7,100 \
\text { June } & 3,000 & 9,500 \
\text { July } & 2,800 & 8,000 \
\text { Auqust } & 2,100 & 6,600
\end{array}$ Using the high-low method, how much is the total fixed cost?

Question

Quizplus · Accepted Answer

The high-low method involves identifying the highest and lowest activity levels and using them to estimate fixed and variable costs. The formula for variable cost per unit is $(\text{Cost at highest activity level} - \text{Cost at lowest activity level}) / (\text{Units at highest activity level} - \text{Units at lowest activity level})$. Here, the highest activity level is in April (3,200 units, $9,400 cost) and the lowest is in March (2,000 units, $6,700 cost). The variable cost per unit is $(9,400 - 6,700) / (3,200 - 2,000) = \$2,700 / 1,200 = \$2.25$. To find the total fixed cost, we use the total cost equation: $\text{Total Cost} = (\text{Variable Cost per Unit} \times \text{Number of Units}) + \text{Fixed Cost}$. Using one of the months as a reference, for March: $6,700 = (2.25 \times 2,000) + \text{Fixed Cost}$, which simplifies to $6,700 = 4,500 + \text{Fixed Cost}$, leading to a fixed cost of $6,700 - 4,500 = \$2,200$.

Hardigree Insurance Has Collected the Following Information Over the Last