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25 May, 20:04

Williams Inc. produces fluorescent lightbulbs for commercial use. The accounting manager is attempting to estimate the total cost for the next quarter using the high-low method. He has compiled data and found the high and low costs are $92,500 and $60,100, respectively, and the associated cost drivers are 7,000 and 3,400 packs, respectively. What is the value for b (the variable cost per unit) ? What is the value for a (the fixed quantity) ?

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  1. 25 May, 23:11
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    Variable cost per unit is $9 and the fixed cost is $29,500

    Explanation:

    The computation of the variable and fixed components are shown below:

    For variable cost per unit, it equals to

    = (High cost - low cost) : (High associated cost drivers - low associated cost drivers)

    = ($92,500 - $60,100) : (7,000 - 3,400)

    = $32,400 : 3,600

    = $9 per unit

    Now the fixed component equal to

    = (High cost) - (variable cost per unit * high associated cost drivers)

    = $92,500 - ($9 per unit * 7,000)

    = $92,500 - $63,000

    = $29,500
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