CIMA BA2 · Chapter 2 · Question 3 of 8
A company's production costs for its lowest and highest activity months were: Lowest: 12,000 units, total cost $74,600 Highest: 20,000 units, total cost $102,200 Using the high-low method, what is the estimated total cost for a month in which 17,000 units are produced?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $91,850
Explanation
Variable cost per unit = ($102,200 - $74,600) / (20,000 - 12,000) = $27,600 / 8,000 = $3.45. Fixed cost = $74,600 - (12,000 x $3.45) = $33,200. Estimated cost at 17,000 units = $33,200 + (17,000 x $3.45) = $33,200 + $58,650 = $91,850.
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