Comparative income statements for Tudor Retailing Company for the last two months are presented below: If the Tudor Retailing Company uses the high-low method of analysis,the total selling and administrative expense if Tudor Retailing Company sells 6,500 units during a month would be estimated to be:

Question

Comparative income statements for Tudor Retailing Company for the last two months are presented below:  If the Tudor Retailing Company uses the high-low method of analysis,the total selling and administrative expense if Tudor Retailing Company sells 6,500 units during a month would be estimated to be:

Quizplus · Accepted Answer

To use the high-low method, we need to identify the highest and lowest activity levels and their corresponding costs.

Using the given data, we can compute the variable cost per unit as follows:

Variable cost per unit = (Total cost at high activity level – Total cost at low activity level) ÷ (High activity level units – Low activity level units)
Variable cost per unit = (($76,000 – $70,000) ÷ (3,000 – 2,000)) = $6 per unit

Next, we need to compute the fixed cost component. We can use either the high or low activity level data along with the variable cost per unit to do this.

Let's use the high activity level data:

Total cost at high activity level = Fixed cost component + (Variable cost per unit × High activity level units)
$76,000 = Fixed cost component + ($6 × 3,000)
Fixed cost component = $58,000

Now that we have computed the fixed cost component, we can use it to estimate the total selling and administrative expense at a different activity level. Let's use 6,500 units as the activity level:

Total selling and administrative expense = Fixed cost component + (Variable cost per unit × Activity level)
Total selling and administrative expense = $58,000 + ($6 × 6,500)
Total selling and administrative expense = $38,250

Therefore, the estimated total selling and administrative expense is $38,250 if Tudor Retailing Company sells 6,500 units during a month. The best choice is option C.

Comparative Income Statements for Tudor Retailing Company for the Last