Mantel Incorporated began producing its new line of dolls at its Connecticut plant in December of year 0. In year 1, it produced 30,000 dolls at a total cost of $385,000. In year 2, its production increased to 80,000 dolls at a total cost of $885,000. Assuming the cost structure was the same for both years, what must be the variable cost (C) and the fixed cost (F) per doll?
A) F is less than $80,000, and C is greater than $7.
B) F is greater than $60,000, and C is less than $5.
C) F is less than $100,000, and C is greater than $9.
D) F is greater than $110,000, and C is less than $6.

Question

Quizplus · Accepted Answer

Using the high-low method, we can calculate the variable cost per doll.

Variable cost per doll = (total cost at the highest level of production - total cost at the lowest level of production)/(highest level of production - lowest level of production)

Variable cost per doll = ($885,000 - $385,000)/(80,000 - 30,000) = $5

To find fixed cost per doll, we can use the following formula:
Fixed cost per doll = Total cost at either level of production - (Variable cost per doll × Number of dolls produced)

Using production in year 1:
Fixed cost per doll = $385,000 - ($5 × 30,000) = $235,000/30,000 = $7.83

Using production in year 2:
Fixed cost per doll = $885,000 - ($5 × 80,000) = $485,000/80,000 = $6.06

Since the fixed cost per doll varied between the two years, we can take an average of the two values to get an estimate of the fixed cost per doll.

Average fixed cost per doll = ($7.83 + $6.06)/2 = $6.945

Therefore, the variable cost per doll is $5 and the fixed cost per doll is approximately $7.00.

The closest choice to this is C) F is less than $100,000, and C is greater than $9.

Mantel Incorporated Began Producing Its New Line of Dolls at Its