Manley Co. manufactures office furniture. During the most productive month of the year, 4,500 desks were manufactured at a total cost of $86,625. In its slowest month, the company made 1,800 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs

Question

Quizplus · Accepted Answer

Using the high-low method, we need to find the variable cost per unit and the total fixed cost.

Variable cost per unit = (Cost at High production level - Cost at Low Production level) ÷ (High production level - Low production level)
Variable cost per unit = ($86,625 - $49,500) ÷ (4,500 - 1,800)
Variable cost per unit = $37,125 ÷ 2,700
Variable cost per unit = $13.75

To find the total fixed cost, we can use either the high or low production level and the variable cost per unit.

Total fixed cost = Total Cost - (Variable cost per unit x Production level)
Total fixed cost = $86,625 - ($13.75 x 4,500)
Total fixed cost = $86,625 - $61,875
Total fixed cost = $24,750

Therefore, the total fixed costs are $24,750 (choice C).

Manley Co Manufactures Office Furniture