Total costs Total variable costs Total fixed costs 75000 90

Total costs: Total variable costs . Total fixed costs 75,000 90,000 $165,000 . . . . . . Cost per unit: Variable cost per unit Complete the cost schedule, identifying each cost by the appropriate letter (a) through (o). High-low method Inc. has decided to use the high-low method to estimate the total cost and the EX 4-7 fixed and variable cost components of the total cost. The data for various levels of pro- duction are as follows: Units Produced 10,000 15,000 22,500 Total Costs $700,000 840,000 920,000 a. Determine the variable cost per unit and the fixed cost. b. Based on part (a), estimate the total cost for 14,000 units of production. EX 4-8 High-low method for service company Diamond Railroad decided to use the high-low method and operating data from the past ths to estimate the fixed and variable components of transportation costs. The used by Diamond Railroad is a measure of railroad operating activity, termed h is the total number of tons multiplied by the miles moved.

Solution

Variable cost per unit =(Total cost at highest level-Total cost at lowest level)/(Highest level-Lowest level)

=(920,000-700,000)/(22500-10000)

which is equal to

=$17.6

Total fixed cost=$700,000-(17.6*10000)

=$524,000

Total cost for 14000 units=(14000*17.6)+$524000

=$770400.