# Accounting help high low method?

Shatner Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

Units Produced Total Costs

2,925 \$322,920

4,390 404,370

6,825 502,320

1. Determine the variable cost per unit and the fixed cost. Round to the nearest dollar.

Variable cost:

\$ per unit

Total fixed cost: \$

2. Based on part 1, estimate the total cost for 3,510 units of production.

Total cost for 3,510 units: \$

Your high/low point data are :

Units Produced Total Costs

2,925 \$322,920

6,825 \$502,320

Variable cost

= ( Change in cost / change in activity)

= [ (\$502,320 - \$322,920) / (6,825 - 2,925 ) ]

= ( \$ 179,400 / 3,900 )

= \$ 46

To find the fixed cost, take the total cost at EITHER the high or the low activity level (doesn't matter which) and deduct the variable cost element. (I'll use the high activity level data point).

Fixed cost element

= ( Total cost - Variable cost element )

= [ \$ 502,320 - ( 6,825 x \$ 46 ) ]

= ( \$ 502,320 - \$ 313,950 )

= \$ 188,370

--------------------------

So the cost formula for activity level of x units is :

C(x) = \$ 188,370 + (\$46)x

C(3,510)

= \$ 188,370 + ( \$46 * 3,510 )

= \$ 188,370 + \$ 161,460

= \$ 349,830

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