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High-Low Method Tashiro Inc
High-Low Method
Tashiro Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:
| Units Produced | Total Costs | |||
| 2,145 | $123,760 | |||
| 845 | 79,560 | |||
| 1,320 | 107,760 | |||
a. Determine the variable cost per unit and the total fixed cost.
| Variable cost (Round to two decimal places.) | $ | per unit |
| Total fixed cost | $ |
b. Based on part (a), estimate the total cost for 1,080 units of production.
| Total cost for 1,080 units: | $ |
Expert Solution
a.
Highest activity cost = $123,760
Lowest activity cost = $79,560
Highest activity = 2,145
Lowest activity = 645
Variable cost per unit = (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)
= (123,760-79,560)/(2,145-845)
= 44,200/1,300
= $34 per unit
Total fixed cost = Highest activity cost - Highest activity x Variable cost per hour
= 123,760- (2,145 x 34)
= 123,760-72,930
= $50,830
| Variable cost | $34 per unit |
| Total fixed cost | $50,830 |
b.
Total estimated cost for 1,080 units of production = = Fixed cost + Variable cost per unit x Number of units produce
= 50,830 + 34 x 1,080
= 50,830+36,720
= $87,550
| Total cost for 1,080 units | $87,550 |
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