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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?

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

The variable cost per unit is estimated at $16.

The cost of manufacturing [tex] x [/tex] units is

[tex] C=ax+b [/tex], where [tex] a [/tex] cost per unit and [tex] b [/tex] fixed cost.

Given that

[tex] 3500a+b=84400\\
1100a+b=46000 [/tex]

Subtract the second equation from the second,

[tex] (3500-1100)a=84400-46000\\
a=16 [/tex]

The variable cost per unit is [tex] \$16 [/tex].

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