Liberty Inc. has decided to use the high-low method to estimate costs. The data for various...

Question:

Liberty Inc. has decided to use the high-low method to estimate costs. The data for various levels of production are as follows:

Units Produced Total Costs

1,370 95,250

700 73,080

2,100 113,680

a. Determine the variable cost per unit and the fixed cost.

b. Based on part (a), estimate the total cost for 1,010 units of production.

High-Low Method:

The high-low method is a quantitative tool for separating the components of a semi-variable cost, which are variable cost and total fixed cost. The variable cost per unit is computed by dividing the difference between the highest and the lowest total costs over the highest and lowest unit bases. The total fixed cost is obtained by substituting either the values of the highest or lowest activity.

Answer and Explanation:

a. Variable cost per unit and fixed costs


Variable cost per unit = ( Highest total cost - Lowest total cost ) / (Highest units - Lowest units)

= (...

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High-Low Method Accounting: Formula & Examples

from Introduction to Business: Homework Help Resource

Chapter 22 / Lesson 29
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