Homework SourseCypress which uses the highlow method had an average cost pe
Cypress, which uses the high-low method, had an average cost per unit of $5 at its lowest level of activity when sales equaled 10,000 units and an average cost per unit of $3.25 at its highest level of activity when sales equaled 24,000 units. Cypress would estimate fixed costs as:
Solution
Cypress would estimate fixed costs as $ 30,000
Working:
| a. | |||||||||||||||||
| Total Costs at lowest level of sales | 10,000 | x | $ 5.00 | = | $ 50,000 | ||||||||||||
| Total Costs at highest level of sales | 24,000 | x | $ 3.25 | = | $ 78,000 | ||||||||||||
| b. | As per high-low method, | ||||||||||||||||
| Variable cost per unit | = | (Total Costs at highest level of activity-Total Costs at lowest level of activity)/(Highest level of activity-Lowest level of activity) | |||||||||||||||
| = | (78000-50000)/(24000-10000) | ||||||||||||||||
| = | $ 2.00 | per unit | |||||||||||||||
| c. | Now, | ||||||||||||||||
| At highest level, | |||||||||||||||||
| Total Costs | $ 78,000 | ||||||||||||||||
| Less:variable costs | 24,000 | x | $ 2.00 | = | $ 48,000 | ||||||||||||
| Fixed Costs | $ 30,000 | ||||||||||||||||
| At Lowest level, | |||||||||||||||||
| Total Costs | $ 50,000 | ||||||||||||||||
| Less:variable costs | 10,000 | x | $ 2.00 | = | $ 20,000 | ||||||||||||
| Fixed Costs | $ 30,000 | ||||||||||||||||
| So, Fixed costs would be | $ 30,000 | ||||||||||||||||
