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Production in 2012 for California Manufacturing, a producer of high security bank vaults, was at its highest point in the month of June when 46 units were produced at a total cost of $500,000. The lowest point in production was in January when only 21 units were produced at a cost of $346,000. The company is preparing a budget for 2012 and needs to project expected fixed cost for the budget year. Using the high/low method, the projected amount of fixed cost per month is

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TomShelby

Answer:

Fixed Cost 216,640

Explanation:

[tex]\left[\begin{array}{ccc}High&46&500,000\\Low&21&346,000\\Diference&25&154,000\\\end{array}\right][/tex]

The first step is calculate the difference between activity levels

This tell us 25 units generated cost for 154,000

154,000 / 25 = Variable Cost = 6,250

Now we use either the low or high values to solve for fixedcost:

total = variable + fixed

fixed = total - variable

HIGH

Total Cost 500,000

Variable          283,360 (6,250 x 46)

Fixed Cost   216,640

LOW

Total Cost 346,000

Variable          129,360 (6,250 x 21)

Fixed Cost 216,640

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