The highest value of total cost was $75,000 in June for Mantilla Beverages Inc.Its lowest value of total cost was $50,000 in December.The company makes a single product.The production volume in June and December were 13,000 and 8,000 units,respectively.What is the fixed cost per month?

Question

Quizplus · Accepted Answer

We can use the high-low method to calculate the fixed cost per month:
Variable cost = (Total cost in high month - Total cost in low month) / (Production volume in high month - Production volume in low month)
Variable cost = ($75,000 - $50,000) / (13,000 - 8,000) = $5 per unit
Total cost = Fixed cost + Variable cost * Production volume
$75,000 = Fixed cost + $5 * 13,000
$50,000 = Fixed cost + $5 * 8,000
Solving these two equations simultaneously, we get:
Fixed cost = $10,000. Therefore, the answer is C.

The Highest Value of Total Cost Was $75,000 in June