Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total cost to manufacture 14,200 units is closest to: (Round your intermediate calculations to 2 decimal places.)

Question

Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.  The best estimate of the total cost to manufacture 14,200 units is closest to: (Round your intermediate calculations to 2 decimal places.)

Quizplus · Accepted Answer

Using the high-low method, we can calculate the cost formula as:

Variable cost per unit = (High total cost - Low total cost) / (High production volume - Low production volume)
Variable cost per unit = ($1,689,400 - $1,437,600) / (13,200 - 11,500)
Variable cost per unit = $126

Total fixed cost = High total cost - (Variable cost per unit * High production volume)
Total fixed cost = $1,689,400 - ($126 * 13,200)
Total fixed cost = $1,689,400 - $1,663,200
Total fixed cost = $26,200

Therefore, the total cost formula is:

Total cost = (Variable cost per unit * Units produced) + Total fixed cost

Plugging in 14,200 units, we get:

Total cost = ($126 * 14,200) + $26,200
Total cost = $1,790,200 + $26,200
Total cost = $1,816,400

The best estimate of the total cost to manufacture 14,200 units is $2,065,750.

Babuca Corporation Has Provided the Following Production and Total Cost