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John Moffat.
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Muslimov
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The following data relate to the number of units produced and their corresponding total costs
incurred.
Units produced Total costs incurred
30.000 $230.000
39.000 $276.000
45.000 $302.500
59.000 $365.500
If the production level exceeds 40.000 units, fixed costs increase by 25% while variable cost per
unit decreases by 10%. Using the High – Low method; calculate the total costs if 47.000 units
are produced.
A. $316.366
B. $311.980
C. $311.500
D. $309.460
Can you help me to solve this problem
John Moffat
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As I wrote in reply to your other question, please do not simply type out a full question and expect to be provided with a full answer. Ask about whatever it is in the printed answer that you are not clear about.
The easiest way to solve this is to use a bit of elementary algebra.
Suppose that at levels below 40,000, the fixed cost if F and the variable cost is V per unit.
Then at the 30,000 level we get: F + 30,000V = 230,000,
and at the 59,000 level we get: 1.25F + 59,000 x 0.9V = 365,500Solving these 2 equations will give you the values of V and F at levels below 40,000. For 47,000 units, increase F by 25% and reduce V by 10%.
Muslimov
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