The manager at Copley Mulch has been trying to calculate the portion of the company's overhead expenses that is fixed and the portion that is variable.Over the past twelve months,the number of yards of mulch processed was highest in July,when the total monthly overhead costs totaled $6,000 for 25,000 yards of mulch processed.The lowest number of yards of mulch processed in the last twelve months occurred in October,when total overhead costs were $4,000 for 15,000 yards of mulch processed.
-What is the fixed portion of the monthly overhead expenses?
A)$5,000
B)$9,000
C)$4,000
D)$1,000

Question

Quizplus · Accepted Answer

The fixed portion of the overhead expenses can be calculated using the high-low method. The difference in cost between the highest and lowest production levels is $6,000 - $4,000 = $2,000, and the difference in production is 25,000 - 15,000 = 10,000 yards. The variable cost per yard is $2,000 / 10,000 = $0.20. Using the lowest production level, the variable cost is 15,000 * $0.20 = $3,000. Therefore, the fixed cost is $4,000 - $3,000 = $1,000.

The Manager at Copley Mulch Has Been Trying to Calculate