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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

High-low method

The manufacturing costs of Ackerman Industries for the first three months of the year follow:

  Total Cost Units Produced
January $1,900,000 20,000 units
February 2,250,000 27,000
March 2,400,000 30,000

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

(a)

To determine

High-low method: It is the method of estimating the variable cost per unit and the fixed costs by using the highest and the lowest level of activities and their associated costs.

To determine: the variable cost per unit.

Explanation

Determine the variable cost per unit.

Difference in total cost =$500,000 (refer Table 1)

Difference in units produced =10,000 units (refer Table 1)

Variablecostperunit =DifferenceintotalcostDifferenceinunitsproduced=$500,00010

(b)

To determine
the total fixed cost.

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