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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

Ziegler Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

Units Produced Total Costs
80,000 $25,100,000
92,000 27,206,000
120,000 32,120,000
  1. a. Determine the variable cost per unit and the total fixed cost.
  2. b. Based on part (a), estimate the total cost for 115,000 units of production.

(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 =$7,020,000 (refer Table 1)

Difference in units produced =40,000 units (refer Table 1)

Variablecostperunit =DifferenceintotalcostDifferenceinunitsproduced=$7,020,00040,000units=$175

b.

To determine
the total cost for 115,000 units of production.

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