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Fulton and Sons, Inc. presently leases a copy machine under an agreement that calls for a fixed fee each month and a charge for each copy made. Fulton made 16,000 copies and paid a total of $630 in March; in May, the firm paid $600 for 14,000 copies. The company uses the high-low method to analyze costs.

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Solution:

Given,

Fulton made 16,000 copies

Paid a total of $630 in March

Firm paid $600 for 14,000 copies

The variable cost per unit is (High − Low costs) ÷ (High − Low Units)

                = ($630 − $600) ÷(16,000 − 14,000) = $0.015 per copy.

Variable costs (using the low level) = 14,000 × $0.015 = $210;

Total costs − variable costs = fixed costs

(or $600 − $210 = $390) Units × Variable cost per unit + Fixed costs

                                             = (12,000 × $0.015) + $390 = $570.00.

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