PE 21-1A High-low method

The manufacturing costs of Buckley Industries for three months of the year are provided below.

                  Total Costs | Units Produced
January              $240,000 | 10,000 units
February.             546,000 | 26,000
March                 700,000 | 30,000

Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost.

Answer:
a. $23 per unit = ($700,000 – $240,000) ÷ (30,000 units – 10,000 units)
b. $10,000 = $700,000 – ($23 × 30,000 units), or $240,000 – ($23 × 10,000 units)