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

Question

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

Quizplus · Accepted Answer

The high-low method is used to estimate the variable cost per unit and the fixed cost component of a cost function. The variable cost per unit is calculated as the difference between the total cost at the highest level of production and the total cost at the lowest level of production, divided by the difference in the number of units produced at those two levels. The fixed cost component is calculated as the total cost at the lowest level of production, minus the variable cost per unit multiplied by the number of units produced at that level.In this case, the highest level of production is 1,600 units and the total cost at that level is $66,000. The lowest level of production is 1,100 units and the total cost at that level is $49,500. The difference in the number of units produced at those two levels is 500 units.The variable cost per unit is calculated as:```Variable cost per unit = ($66,000 - $49,500) / (1,600 units - 1,100 units) = $33/unit```The fixed cost component is calculated as:```Fixed cost component = $49,500 - ($33/unit * 1,100 units) = $13,200```Therefore, the monthly total cost equation is:```Total cost = $13,200 + $33/unit```

Frazier Manufacturing Company Collected the Following Production Data for the Past