The controller of Joy Co has requested a quick estimate of the manufacturing supplies needed for July when production is expected to be 470,000 units.Below are actual data from the prior three months of operations:
$\begin{array}{|l|r|r|}
\hline & \text { Production in units } & \text { Manufacturing supplies } \
\hline \text { March } & 450,000 & \$ 723,060 \
\hline \text { April } & 540,000 & 853,560 \
\hline \text { May } & 480,000 & 766,560 \
\hline
\end{array}$
Using these data and the high-low method,what is the best estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range.)
A) $752,060.
B) $755,196.
C) $805,284.
D) $1,188,756.

Question

Quizplus · Accepted Answer

The high-low method is used to estimate the variable cost per unit. The variable cost per unit is calculated by dividing the change in total variable cost by the change in activity level. In this case, the change in total variable cost is $853,560 - $723,060 = $130,500, and the change in activity level is 540,000 units - 450,000 units = 90,000 units. Therefore, the variable cost per unit is $130,500 / 90,000 units = $1.45.To estimate the total variable cost for July, we multiply the variable cost per unit by the expected activity level. In this case, the expected activity level is 470,000 units. Therefore, the estimated total variable cost for July is $1.45 * 470,000 units = $681,500.

The Controller of Joy Co Has Requested a Quick Estimate