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 square metres of mulch processed was highest in July, when the total monthly overhead costs totaled $6,000 for 25,000 square metres of mulch processed. The lowest number of square metres of mulch processed in the last twelve months occurred in October, when total overhead costs were $4,000 for 15,000 square metres of mulch processed. Use the high-low method to answer the following questions.
-What is the fixed portion of the monthly overhead expenses at Copely Mulch?
A) $5,000
B) $9,000
C) $4,000
D) $1,000

Question

Quizplus · Accepted Answer

The high-low method calculates the variable cost per unit first, which is ($6,000 - $4,000) / (25,000 - 15,000) = $0.20 per square metre. Then, using either the high or low point, the fixed cost is calculated: $6,000 - ($0.20 * 25,000) = $1,000.

The Manager at Copley Mulch Has Been Trying to Calculate