To follow is information about the units produced and total manufacturing costs

Question

To follow is information about the units produced and total manufacturing costs for Pine Enterprises for the past six months Month anuary February March April May une Number of units produced 9,000 7,500 6,600 6,800 4,500 7,000 Total manufacturing costs $6,500 $8,000 $7,550 $7,650 6,000 $7,750 Using the high -low method, what will the total monthly manufacturing costs be if the company produces 9,100 units? (Round intermediary calculations to the nearest cent.) O A. $1,001 O B. $6,511 O C. $5,510 O D. $1,991

Explanation / Answer

Answer : B

Computation of total manufacturing cost using high-low method :

Step 1: Select the activity with highest and lowest amouts ( no.of units produced is the activity).

choose 4500 and 9000

Step 2: Select the costs adjacents to these activities

$6000 and $6500

Step 3: Determine the variable cost

(6500 - 6000) = (9000 - 4500)

$0.11 per unit

Step 4: Determine the fixed cost

Total cost = variable cost pe unit * no.of units + fixed cost

6500 = 0.11 * 9000 + fixed cost

fixed cost = $5510

Step 5 : Total menufacturing cost if compny produces 9100 units

0.11 * 9100 units + $5510

$6511

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