Question

Paragraph Select- Styles Editing Voir Below are the processing costs of Hansen Inc. observed for producing a type of mult vitamin tablets in bottles over the last 6 months Month 1 2 3 4 5 6 Units of bottles Produced 5500 9,000 13,000 3,500 17,000 4.500 3 Processing Cost $36,000 $44,000 $51,000 $30,000 $39,000 $35,000 a Use the high low method to determine the variable cost per unit and fixed cost per month. Express your results in the form of a linear equation y= a + bx (15 marks) I I b. Predict the total processing cost if 22,000 units are produced. (10 marks)

Answer 1

Calculation of Variable cost per unit using high low method

Variable cost per unit = highest activity cost - lowest activity cost/highest activity unit – lowest                              activity unit

                                             = $51000 - $30000/17000-3500

                                             = $21000/13500

                                             =$1.56

Fixed cost per month= Highest activity cost – (variable cost per unit * highest activity units)

                                     = $51000-(1.56*17000)

                                    = $51000-$26520

                                    = $24480

Presentation in linear equation

The company has fixed costs of $24480 and variable costs of $1.56 for each unit of output.
What is total cost at varying levels of output?

let x = units of output
let C = total cost

C = fixed cost + variable cost*x

Y = a + bx

a = fixed cost, b = variable cost, x = outputs, c = y = total cost

Output(x)	C=fixed cost+ (variable cost*x) ($)
5500	24480+ (5500*1.56) =33060
9000	24480+(9000*1.56) =38520
13000	24480+(13000*1.56) =44760
3500	24480+(3500*1.56) =29940
17000	24480+(17000*1.56) =51000
4500	24480+(4500*1.56) =31500