Answer the following questions using the information below:
Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company.
Gallup Company uses the high-low method to analyze mixed costs.
-What is the estimated total cost at an operating level of 5,000 units?
A)$6,227.20
B)$6,040.00
C)$4,283.20
D)$8,510.00

Question

Answer the following questions using the information below:
Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company.
  Gallup Company uses the high-low method to analyze mixed costs.
-What is the estimated total cost at an operating level of 5,000 units?
A)$6,227.20 
B)$6,040.00 
C)$4,283.20 
D)$8,510.00

Quizplus · Accepted Answer

Using the high-low method, we need to calculate the variable cost per unit and the fixed cost.

Highest level of production:
Units = 6,000
Total cost = $8,130.00

Lowest level of production: 
Units = 2,000
Total cost = $3,950.00

Variable cost per unit = (Highest total cost - Lowest total cost)/(Highest units - Lowest units)
= ($8,130 - $3,950)/(6,000 - 2,000) = $1.045

Fixed cost = Highest total cost - (Variable cost per unit * Highest units) 
= $8,130 - ($1.045 * 6,000) = $1,170

Using the formula for total mixed cost:
Total mixed cost = Fixed cost + (Variable cost per unit * Operating level)

Substituting the values:
Total mixed cost = $1,170 + ($1.045 * 5,000) = $6,040.

Therefore, the estimated total cost at an operating level of 5,000 units is $6,040. The best choice is B.

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