Question

Ingram Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $84,400. In its slowest month, the company made 1,100 desks at a cost of $46,000. Using the high-low method of cost estimation, what is the variable cost per unit at the 3,500 level of operations?

Answer 1

The cost of manufacturing
`x` units is

`C=ax+b`, where
`a` cost per unit and
`b` fixed cost.

Given that

`image`

Subtract the second equation from the second,

`image`

The variable cost per unit is
`\$16`.

Answer 2

The average variable cost per unit is
.. (84400 -46000)/(3500 -1100) = 38400/2400 = 16

The variable cost per unit is estimated at $16.