Question

Manley co. manufactures office furniture. during the most productive month of the year, 4,500 desks were manufactured at a total cost of $86,625. in its slowest month, the company made 1,800 desks at a cost of $49,500. using the high-low method of cost estimation, total fixed costs are:

Answer 1

Total fixed cost is given by;

Total fixed cost = Total cost - (Variable cost*Units)

Where;
Variable cost = (Total cost of most productive month - Total cost of least productive month)/(Total units of most productive month - Total units of least productive month) = (86,625 - 49,500)/(4500-1800) = $13.75 per unit

Using either of the total cost and respective units produced;

Total fixed cost = 86,625 - (4500*13.75) = 49,500 - (1800*13.75) = $24,750

Therefore, using the high-low method of cost estimation, total fixed costs are $24,750