Question

QUESTION 27 Davis Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. Direct materials Direct labor Manufacturing overhea.. 1,000 units $44,200 $37,300 $48,500 2,000 units $88,400 $74,600 $62,200 Using the Hi-Low Method, the best estimate of the total monthly fixed manufacturing cost is: o 1. $130,000 O 2. $177,600 3.$34,800 4. $225,200 QUESTION 28 The high and low points used in the high-low method tend to be unusual and therefore the cost formula may not accurately represent all of the data True O False

Answer 1

(27) you are finding fixed costs, so direct materials is a variable cost. Direct labor is usually variable too.
1) Variable Cost Per Unit = Change in cost / change in act
=($62200 − $48500) ÷ (2000 units − 1000 units)
= $13700 ÷ 1000 units
= $13.70 per unit
Fixed cost = Total cost − Variable cost element
= $48500 − ($13.70 per unit × 1000 units)
= $34800
Option 3 is correct

(28) TRUE, The high and low points used in the high-low method tend to be unusual and therefore the cost formula may not accurately represent all of the data