Homework Sourse3 Highlow method The following cost data pertain to 20X6 ope
3. High-low method
The following cost data pertain to 20X6 operations of Heritage Products:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Shipping costs $58,200 $58,620 $60,125 $59,400
Orders shipped 120 140 175 150
The company uses the high-low method to analyze costs.
a. Determine the variable cost per order shipped.
b. Determine the fixed shipping costs per quarter.
c. If present cost behavior patterns continue, determine total shipping costs for 20X7 if activity amounts to 570 orders.
Solution
Solution:
| Highest Orders | 175 |
| Cost with highest orders | 60,125 |
| Lowest orders | 120 |
| Cost with Lowest orders | 58,200 |
| a. | |
| Variable cost = (highest cost - lowest cost)/ Highest orders- lowest orders) | (60,125-58,200) / (175-120) |
| Variable cost = | 35 |
| b. | |
| Fixed cost = Total cost - Variable cost | |
| Total cost for 120 orders | 58,200 |
| Less: Variable cost - $ 35 per order | 4,200 |
| Fixed cost= | 54,000 |
| c. Total cost for 570 orders | |
| Variable cost - $ 35 * 570 | 19,950 |
| Fixed cost | 54,000 |
| Total cost | 73,950 |
