Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 67

High-low method —missing amounts The following data have been extracted from the records of Riddle Co.:

	July	December
Production level, in units	5,000	10,000
Variable costs	$12,000	$ ?
Fixed costs	?	18,000
Mixed costs	10,000	?
Total costs	$40,000	$59,000

Required:

a.Calculate the missing costs.

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b. Calculate the cost formula for mixed cost using the high-low method.

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c. Calculate the total cost that would be incurred for the production of 8,000 units.

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d. Identify the two key cost behavior assumptions made in the calculation of your answer to part c.

Step 1 of 13

Calculation of the missing amounts using high low method:

Variable cost:

The cost to the business or individual that differs over the duration of time depending on the number of factors

Fixed costs:

Fixed cost is defined as the cost that does not change with sales, production, and other direct and indirect expenses.

Mixed costs:

Mixed cost is defined as a cost that includes both variable and fixed costs.