Question

Strait Co. manufactures office furniture. During the most productive month of the year, 3,700 desks were manufactured at a total cost of $82,900. In the month of lowest production the company made 1,120 desks at a cost of $58,600. Using the high-low method of cost estimation, total fixed costs are a.$48,046 b.$24,300 c.$58,600 d.$82,900

Answer 1

Answer:

The total fixed costs amounts to $48,083

Explanation:

In order to compute the total fixed cost, first need to compute the variable cost per unit as:

Variable cost per unit = (Total cost of most productive month - Aggregate cost of lowest production) / (Units produced in most productive month - Units produced in lowest productive month)

= ($82,900 - $58,600) / (3,700 - 1,120)

= $24,300 / 2,580

Variable cost per unit =$9.41

Now, computing the variable cost for 3,700 desks (because of high low method) as:

Variable cost = 3,700 × $9.41

Variable cost = $34,817

Computing the fixed cost as:

Fixed cost = Total cost - Total variable cost

where

Total cost is $82,900

Total variable cost is $34,817

So,

Fixed cost = $82,900 - $34,817

Fixed cost = $48,083

Note: The correct answer is $48,083. There might be correct option is not mentioned.