Question

The controller of Fortnight Co. has requested a quick estimate of the manufacturing supplies needed for the Cleveland Plant for the month of July, when production is expected to be 470,000 units to meet the ending inventory requirements and sales of 475,000 units. Fortnight Co.'s budget analyst has the following actual data for the last three months. Using the high-low method to develop a cost estimating equation, the total estimated cost of needed manufacturing supplies for July would be: (CMA adapted)

Answer 1

Answer:

$752,060

Explanation:

Calculation to determine what the total estimated cost of needed manufacturing supplies for July would be:

First step is to calculate the Variable cost per unit

Using this formula

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Let plug in the formula

Variable cost per unit= (853,560 - 723,060) / (540,000 - 450,000)

Variable cost per unit= $1.45

Second step is to calculate the Fixed costs

Using this formula

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Let plug in the formula

Fixed costs= 853,560 - (1.45*540,000)

Fixed costs= $70,560

Fixed costs= 723,060 - (1.45*450,000)

Fixed costs= $70,560

Now let calculate the total estimated cost

Total estimated cost= 70,560 + 1.45*470,000

Total estimated cost= $752,060

Therefore the total estimated cost of needed manufacturing supplies for July would be:$752,060