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BE 20-1High-Low Method1The manufacturing costs of Rosenthal Industries for the first three months of the year follow: Total Costs Units ProducedJanuary$1,890,000  22,500 unitsFebruary2,800,000  35,000March4,230,000  55,000Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost.

Question

BE 20-1

High-Low Method

  • 1The manufacturing costs of Rosenthal Industries for the first three months of the year follow:
 

Total Costs

 Units Produced

January

$1,890,000

  22,500 units

February

2,800,000

  35,000

March

4,230,000

  55,000

  • Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost.
check_circleAnswer
Step 1

High low method is used in accounting to separate the variable cost & fixed cost from limited data given. It involves the comparison of lowest level activity cost data with highest level activity cost data.

Given information:

Units produced
22,500
35,000
55,000
Total cost (S)
1,890,000
2,800,000
Month
January
February
March
4,230,000
help_outline

Image Transcriptionclose

Units produced 22,500 35,000 55,000 Total cost (S) 1,890,000 2,800,000 Month January February March 4,230,000

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Step 2

Highest activity cost is $4,230,000

Highest units produced is 55,000

Lowest activity cost is $1,890,000

Lowest units produced is 22,500

Variable cost per unit is calculated as:

Variablecostper unit=gh activity cost -- Low activity cost
High activity units -Lowest activity units
$4,230,000 $1,890, 000
55,000 22,500
$2,340,000
32,500
$72
help_outline

Image Transcriptionclose

Variablecostper unit=gh activity cost -- Low activity cost High activity units -Lowest activity units $4,230,000 $1,890, 000 55,000 22,500 $2,340,000 32,500 $72

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Step 3

Highest activity cost is $4,230,000

Variable cost per unit is $72

Highest ...

Fixed costHighest activity cost-
t=|
(Variable cost per unit Highest activity units)
$4,230,000-($72 x55,000)
$4,230,000-$3,960,000
-$270,000
help_outline

Image Transcriptionclose

Fixed costHighest activity cost- t=| (Variable cost per unit Highest activity units) $4,230,000-($72 x55,000) $4,230,000-$3,960,000 -$270,000

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