Frazier Manufacturing Company collected the following production data for the past month: $\begin{array}{rr}\text { Units Produced }&\text { Total Cost }\
1,600 & \$ 66,000 \
1,300 & 57,000 \
1,500 & 67,500 \
1,100 & 49,500
\end{array}$ If the high-low method is used, what is the monthly total cost equation?

Question

Quizplus · Accepted Answer

The high-low method involves finding the variable cost per unit using the highest and lowest activity levels. The difference in cost between the highest and lowest levels is divided by the difference in units produced. Here, the highest level is 1,600 units with a total cost of $66,000, and the lowest level is 1,100 units with a total cost of $49,500. The variable cost per unit is calculated as $(\$66,000 - \$49,500) / (1,600 - 1,100) = \$16,500 / 500 = \$33/unit$. To find the fixed cost, we substitute the variable cost and either the high or low activity level into the total cost equation: \$66,000 = Fixed Cost + (\$33 \times 1,600). Solving for Fixed Cost gives \$13,200. Therefore, the total cost equation is Total cost = \$13,200 + \$33/unit.

Frazier Manufacturing Company Collected the Following Production Data for the Past