7. Presented below is the production data for six months showing the mixed costs incurred by Anderson Company. MonthCostUnits

July$5,8904,100

August$4,0123,200

September$7,4806,300

October$9,0007,500

November$5,8005,800

December$7,3366,600

Anderson Company uses the high-low method to analyze mixed costs. The cost function is where Y= Total Cost and X= Number of units.

A) Y = $440 + $1.12X B) Y = $300 + $1.16X

C) Y = $440 + $1.20X D) Y = $7,850 + $0.132X

Y = $300 + $1.16X

Explanation:

The high-cost-method calculates the variable costs using the formula.

Variable costs = (Highest Activity Cost – Lowest Activity Cost)

We consider the months with the highest and lowest activity levels and use their related cost in the above formula.

For Anderson company,  October had the highest activity level while August had the lowest.

Variable costs will be

= (9,000- 4,012) divide by (7,500-3,200)

=4,988/ 4300

=1.16

Variable costs = $1.16 per unit

Fixed costs will be the total cost - variable cost in either of the months.

=9000 -(7500 x $1.16)

=9000- 8700

=$300

Fixed cost are $300

Total costs = Fixed costs plus variable cost

If Y is total costs and X number of units

Then Y= $300 + 1.16X

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