Answer :
To determine the fixed costs using the high-low method, we need to follow these steps:
1. Identify the highest and lowest production volumes.
2. Calculate the variable cost per unit.
3. Calculate the fixed cost.
Step 1: Find the Months with the Highest and Lowest Production Volumes.
Looking at the data, September has the highest production volume of 3,200 units and November has the lowest production volume of 1,200 units.
Step 2: Calculate the Variable Cost Per Unit.
We'll calculate the variable cost per unit using the electricity costs and the production volumes of the highest and lowest months.
Variable Cost Per Unit = (Cost at Higher Activity Level - Cost at Lower Activity Level) / (Higher Activity Level - Lower Activity Level)
For September (High):
Electricity Costs = $5,700
Production Volume = 3,200 units
For November (Low):
Electricity Costs = $2,400
Production Volume = 1,200 units
Variable Cost Per Unit = ($5,700 - $2,400) / (3,200 units - 1,200 units)
Variable Cost Per Unit = $3,300 / 2,000 units
Variable Cost Per Unit = $1.65 per unit
Step 3: Calculate the Fixed Cost.
Fixed Cost = Total Cost at either Level - (Variable Cost Per Unit × Production Volume at that level)
We can use either the highest or the lowest level to calculate the fixed cost. Let's use the lowest level (November):
Fixed Cost = Total Cost in November - (Variable Cost Per Unit × Production Volume in November)
Fixed Cost = $2,400 - ($1.65 × 1,200 units)
Fixed Cost = $2,400 - $1,980
Fixed Cost = $420
So the fixed cost is $420. Looking at the options provided, the correct choice is:
○ $420
Therefore, the answer is $420.
