Fan Corp Uses the High-Low Method to Estimate How Its Costs

question 161

Multiple Choice

Fan Corp. uses the high-low method to estimate how its costs vary with levels of production. For the year, its high production was 5,000 units in a day, at a cost of $180,000, and its low production was 4,000 units, at a cost of $160,000. Its fixed costs equal

• A) Zero
• B) 50000
• C) 80000
• D) 100000

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Definitions:

Depreciation

The method of allocating the cost of a tangible or physical asset over its expected useful life to account for the decrease in its value over time.

Overstate Expenses

To overstate expenses means to report higher expenses than were actually incurred, which can lead to an understatement of net income in financial reporting.

Understate Assets

The incorrect reporting of asset values on the balance sheet, making them appear lower than their actual worth.

Total Assets

The sum of all resources owned by a company, valued in financial terms, and listed on the balance sheet.