Tommy's Seafood used high-low data from June and July to determine its variable cost of $15 per unit. Additional information follows: If Tommy's produces 2,300 units in August, how much is its total cost expected to be?
A) $10,000
B) $49,500
C) $34,500
D) $44,500

Question

Tommy's Seafood used high-low data from June and July to determine its variable cost of $15 per unit. Additional information follows:  If Tommy's produces 2,300 units in August, how much is its total cost expected to be?
A) $10,000 
B) $49,500 
C) $34,500 
D) $44,500

Quizplus · Accepted Answer

To calculate the total cost, we use the following formula:
Total cost = Fixed cost + (Variable cost per unit x Number of units)
The high-low data tells us that the variable cost per unit is $15. Therefore, we just need to determine the fixed cost to calculate the total cost.

Using the high-low method:
Highest cost: $71,500 (July)
Lowest cost: $34,000 (June)

Variable cost = $71,500 - $34,000 = $37,500
Number of units produced in July = 4,200
Number of units produced in June = 2,100
Units produced in August = 2,300

Using the formula:
$37,500 ÷ 2,100 units = $17.86 (rounded to $18 fixed cost per unit)

Now we can calculate the total cost:
Total cost = $18 x 2,300 + $18,000
Total cost = $49,400

Therefore, the best choice is D) $44,500.

Tommy's Seafood Used High-Low Data from June and July to Determine