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The manufacturing costs of Carrefour Enterprises for the first three months of the year are provided below
The manufacturing costs of Carrefour Enterprises for the first three months of the year are provided below.
| Total Costs | Units Produced | |
|---|---|---|
| June | $300,000 | 2,700 units |
| July | 440,000 | 5,500 |
| August | 325,000 | 3,500 |
Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost.
a. Variable cost per unit$ _____
b. Total fixed cost$ _____
Expert Solution
According to the high-low method, the formulas for calculating variable cost and fixed cost are as follows:
Variable cost = (Highest Activity Cost - Lowest Activity Cost) / (Highest units - Lowest units)
Fixed cost = Highest Activity Cost - (Variable cost * Highest units)
Substituting the values from the table, we get,
a. Variable cost per unit = (440,000 - 300,000) / (5,500 - 2,700) = $50 per unit
b. Total fixed cost = 440,000 - (50 x 5,500) = $165,000
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