Chapter 22, Problem E22.32E

To determine

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 –

$\text{Variable cost per unit}=\frac{\text{Total cost athighestlevel}-\text{Total cost at lowest level}}{\text{Total units athighestlevel}-\text{Total units at lowest level}}$

Total Variable cost at the level of output = Variable cost per unit X Total units at the level of activity

Total fixed cost = Total cost – Total Variable cost at the level of output

Requirement 1

To determine:

Variable cost per inspection.

To determine

Requirement 2:

To determine:

Total fixed costs from the mixed costs given

To determine

Requirement 3:

To determine:

• The equation of variable and fixed cost used to calculate mixed cost

• Operating costs for 1,000 inspections

To determine

Requirement 4:

To prepare:

Graph illustrating the total costs for 900, 1,000 and 1,300 inspections