Use the information below to answer the following question(s).
Presented below is the production data for the last six months of the year for the mixed costs incurred by Wagner Company.

-Using the high-low method, the cost function would be stated as
A) Y = $2,200 + $2.80X.
B) Y = $17,816 + $0.36X.
C) Y = $536 + $3.06X.
D) Y = $24,450 + $0.33X.
E) Y = $39,250 + $0.33X.

Question

Use the information below to answer the following question(s).
Presented below is the production data for the last six months of the year for the mixed costs incurred by Wagner Company.
 
-Using the high-low method, the cost function would be stated as
A) Y = $2,200 + $2.80X. 
B) Y = $17,816 + $0.36X. 
C) Y = $536 + $3.06X. 
D) Y = $24,450 + $0.33X. 
E) Y = $39,250 + $0.33X.

Quizplus · Accepted Answer

The high-low method calculates the variable cost per unit by dividing the difference between the total cost at the high activity level and the total cost at the low activity level by the difference between the activity level at the high activity level and the activity level at the low activity level. The fixed cost is then calculated by subtracting the variable cost per unit from the total cost at either the high activity level or the low activity level.In this case, the total cost at the high activity level is $24,450 and the activity level is 8,000 units. The total cost at the low activity level is $17,816 and the activity level is 5,000 units. The difference between the total cost at the high activity level and the total cost at the low activity level is $6,634. The difference between the activity level at the high activity level and the activity level at the low activity level is 3,000 units. The variable cost per unit is $2.21 ($6,634 / 3,000). The fixed cost is $15,236 ($24,450 - $2.21 * 8,000). Therefore, the cost function would be stated as Y = $15,236 + $2.21X.

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