Question

Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company. Month Cost Units January €4,890 4,100 February 4,024 3,200 March 6,480 5,300 April 8,840 7,500 May 5,800 4,800 June 7,336 6,600 Gallup Company uses the high-low method to analyze mixed costs. a. How would the cost function be stated? b. What is the estimated total cost at an operating level of 5,000 units?

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Month Cost Units

January $4,890; 4,100 units

February $4,024; 3,200 units

March $6,480; 5,300 units

April $8,840; 7,500 units

May $5,800; 4,800 units

June $7,336; 6,600 units

Gallup Company uses the high-low method to analyze mixed costs.

We need to use the following formula:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (8,840 - 4,024) / (7,500 - 3,200)

Variable cost per unit= 1.12 per unit

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 8,840 - (1.12*7,500)= 440

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 4,024 - (1.12*3,200)= 440

A) Cost function:

Total cost= 1.12*x + 440

B) Units= 5,000

Total cost= 1.12*5,000 + 440= $6,040