Mont Tota uction Activity (Units Produced) 3.500 3.750 3,800 3,400 5,800 5.500 2

Question

Mont Tota uction Activity (Units Produced) 3.500 3.750 3,800 3,400 5,800 5.500 2,900 3.300 3,600 5.900 5,600 5,000 Costs $230,000 250,000 260,000 Ju August September October November December January 340,000 330,000 200,000 210,000 Mare pr May June 380,000 350,000 a) Determine the variable cost per unit and the fixed cost using the high-low method. b) What is the equation of the total mixed cost function? c) Prepare the scatter diagram, clearly showing any outliers. d) Using the line of best-fit, determine the company's fixed cost per month and the variable cost per unit. (use o g5000 units.) e) In view of the department's cost behaviour pattern, which of the two methods appear more appropriate? Explain your answer

Explanation / Answer

a) variable cost per unit = (Total cost at highest level of activity - Total cost at lowest level of activity) /(highest level of activity - lowest level of activity)

= ($380000 - $200000) / (5900 - 2900)

= $180000 / 3000

= $60 per unit

Fixed cost = $380000 - $60 * 5900 units

= $380000 - $354000

= $26000

b) cost function :

y = $26000 + $60x

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