Strait Co. manufactures office furniture. During the most productive month of the year, 3,000 desks were manufactured at a total cost of $59,000. In the month of lowest production the company made 1,125 desks at a cost of $38,000. Using the high-low method of cost estimation, total fixed costs are
A) $21,000
B) $25,400
C) $42,000
D) $13,000

Question

Quizplus · Accepted Answer

Fixed costs can be calculated using the high-low method formula: Fixed Cost = Total Cost - (Variable Cost per Unit * Number of Units). First, find the variable cost per unit: ($59,000 - $38,000) / (3,000 - 1,125) = $21,000 / 1,875 = $11.20 per unit. Then, calculate fixed costs using either the high or low point: $59,000 - ($11.20 * 3,000) = $25,400.

Strait Co Manufactures Office Furniture