Chapter 12, Problem 12.2ME

To determine

Concept Introduction:

Mixed cost and high-low method:

Mixed cost can be defined as the cost which does not change directly proportional to the change in the level of output. It is neither considered variable cost as it does change directly with the change in the level of output nor it is considered as fixed cost as it does not remain constant at all levels of output.

High-low method is the method used to segregate mixed cost into variable cost and fixed cost. In high low method, generally two levels of output are taken which are considered as highest and the lowest level of output. As well as the total mixed cost at these levels are also considered.

The formulas used in high-low method to calculate variable cost and fixed cost are −

  $\text{Variable cost per unit =}\frac{\left(\text{Total cost at highest level-Total cost at lowest level}\right)}{\left(\text{Total units at highest level-Total units at lowest level}\right)}$

  $\text{Total Variable cost at the level of output = Variable cost per unit X Total units at the level of activity}$

  $\text{Total fixed cost = Total cost – Total Variable cost at the level of output}$

To compute:

Teri's monthly salary and commission rate per unit sold

To determine

Concept Introduction:

Mixed cost and high-low method:

Mixed cost can be defined as the cost which does not change directly proportional to the change in the level of output. It is neither considered variable cost as it does change directly with the change in the level of output nor it is considered as fixed cost as it does not remain constant at all levels of output.

High-low method is the method used to segregate mixed cost into variable cost and fixed cost. In high low method, generally two levels of output are taken which are considered as highest and the lowest level of output. As well as the total mixed cost at these levels are also considered.

The formulas used in high-low method to calculate variable cost and fixed cost are −

  $\text{Variable cost per unit =}\frac{\left(\text{Total cost at highest level-Total cost at lowest level}\right)}{\left(\text{Total units at highest level-Total units at lowest level}\right)}$

  $\text{Total Variable cost at the level of output = Variable cost per unit X Total units at the level of activity}$

  $\text{Total fixed cost = Total cost – Total Variable cost at the level of output}$

To compute:

Total number of units sold in a year when Teri's total compensation amounted to $ 158,000