Question

Exercise 2-16A Estimating fixed and variable costs using the high-low method LO 2-6 Benson Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During 2019, the high point in activity occurred in June when it produced 202 boats at a total cost of $145,800. The low point in production occurred in January when it produced 39 boats at a total cost of $48,000. Required a. Use the high-low method to estimate the amount of fixed cost incurred each month by Benson Boat Company. b. Determine the total estimated cost if 180 boats are made. Fixed cost Total estimated cost

Answer 1

Answer

• High Low method working

	Months	Units	Cost
High Level	June	202	$                145,800.00
Low Level	Jan	39	$                   48,000.00
Difference		163	$                   97,800.00
A	Difference in Cost		$                   97,800.00
B	Difference in units		163
C = A/B	Variable cost per unit		$                      600.000
Working		High Level	Low Level
A	Total Cost	$              145,800.00	$                   48,000.00
B	Total Units	202	39
C	Variable cost per unit	$                       600.00	$                         600.00
D = B x C	Total Variable cost	$              121,200.00	$                   23,400.00
E = A - D	Total Fixed Cost	$                 24,600.00	$                   24,600.00

• Requirement [a] Fixed Cost = $ 24,600
• Requirement [b]
  Total estimated cost = $ 24600 fixed cost + ($600 x 180 boats)
  24600 + 108000
  = $ 132,600