Georgia Meadows Company uses the high-low method to analyze production costs. The following information relates to the production data for the first six months of the year.$\begin{array}{llll}\text { Month } & \operatorname{Cost}(\mathrm{Y})&\operatorname{Hours}(\mathrm{H})\
\text { January } & \$ 8,542 & 6,530 \
\text { February } & \$ 7,750 & 5,950 \
\text { March } & \$ 9,700 & 7,500 \
\text { April } & \$ 7,435 & 5,700 \
\text { May } & \$ 7,200 & 5,500 \
\text { June } & \$ 9,263 & 6,750
\end{array}$What is the estimated total cost at an operating level of 8,000 hours?
A) $9,525.
B) $9,835.
C) $10,185.
D) $10,325.

Question

Georgia Meadows Company uses the high-low method to analyze production costs. The following information relates to the production data for the first six months of the year.$\begin{array}{llll}\text { Month } & \operatorname{Cost}(\mathrm{Y})&\operatorname{Hours}(\mathrm{H})\
\text { January } & \$  8,542 & 6,530 \
\text { February } & \$  7,750 & 5,950 \
\text { March } & \$  9,700 & 7,500 \
\text { April } & \$  7,435 & 5,700 \
\text { May } & \$  7,200 & 5,500 \
\text { June } & \$  9,263 & 6,750
\end{array}$What is the estimated total cost at an operating level of 8,000 hours?
A) $9,525.
B) $9,835.
C) $10,185.
D) $10,325.

Quizplus · Accepted Answer

To estimate the total cost at an operating level of 8,000 hours using the high-low method, first identify the highest and lowest levels of activity and their corresponding costs. The highest level of activity is in March with 7,500 hours and a cost of $9,700. The lowest level of activity is in May with 5,500 hours and a cost of $7,200. The variable cost per hour (VC) is calculated as:$$VC = \frac{\text{Change in cost}}{\text{Change in hours}} = \frac{9,700 - 7,200}{7,500 - 5,500} = \frac{2,500}{2,000} = 1.25$$The fixed cost (FC) can be calculated using the total cost equation $Y = VC \times H + FC$, using either the high or low point. Using the low point (May):$$7,200 = 1.25 \times 5,500 + FC$$$$FC = 7,200 - 1.25 \times 5,500 = 7,200 - 6,875 = 325$$The estimated total cost (Y) at 8,000 hours is:$$Y = 1.25 \times 8,000 + 325 = 10,000 + 325 = 10,325$$

Georgia Meadows Company Uses the High-Low Method to Analyze Production