Part 1: For each of the six different costs (A, B, ..., F) given below, indicate
ID: 2419938 • Letter: P
Question
Part 1: For each of the six different costs (A, B, ..., F) given below, indicate whether it is a variable, fixed, or mixed cost with regard to machine hours. Use the high-low technique to estimate the variable cost per machine hour and the total fixed costs for each.
Cost
100 hours
125 hours
A
$1,000
$1,000
B
$3,000
$3,750
C
$14,200
$16,700
D
$8,000
$8,000
E
$6,500
$7,000
F
$5,000
$6,250
PART 2: If machine hours are constant per unit of finished product, which of the above costs (A, B, …, F) would decrease on a cost per unit basis if the number of units made increased?
I need someone to answer these step-by-step, so that I may understand. The high-low method needs to be used for each one. I went through some practice exercises to try to figure this out, but they didn’t help. My school doesn’t have tutors available for this.
For Part 1, this is what I’m thinking:
A – Fixed, because it is the same.
B – Variable, because $3750 is 25% more than $3000, but I really don’t know.
C – Mixed…I really don’t know.
D – Fixed, because it is the same
E – Mixed…I really don’t know.
F – Variable, because $6250 is 25% more than $5000.
Part 2, I just don’t understand at all, but I know that:
Variable cost per unit = difference in total costs divided by difference in production, but I don’t know how to apply that here, and I don’t know how to do the highest level and lowest level calculations.
Cost
100 hours
125 hours
A
$1,000
$1,000
B
$3,000
$3,750
C
$14,200
$16,700
D
$8,000
$8,000
E
$6,500
$7,000
F
$5,000
$6,250
Explanation / Answer
Cost 100 hours Cost per Unit = Cost/100 125 hours Cost per Unit = Cost/125 Type of Cost Reason A 1,000.00 10.00 1,000.00 8.00 Fixed Since total cost for 100 hours and 125 hours is same B 3,000.00 30.00 3,750.00 30.00 Variable Since per unit cost for 100 hours and 125 hours is same C 14,200.00 142.00 16,700.00 133.60 Mixed Since neither total cost nor per unit cost for 100 hours and 125 hours is same. So some part of cost is fixed and some variable D 8,000.00 80.00 8,000.00 64.00 Fixed Since total cost for 100 hours and 125 hours is same E 6,500.00 65.00 7,000.00 56.00 Mixed Since neither total cost nor per unit cost for 100 hours and 125 hours is same. So some part of cost is fixed and some variable F 5,000.00 50.00 6,250.00 50.00 Variable Since per unit cost for 100 hours and 125 hours is same Fixed Cost and Mixed Cost would decrease This is due to the Fixed cost and Fixed part of Mixed Cost wil remain same irrespective of no of units produced. So if thereare greater no of units then per unit fixed cost would be less