Taunton Company Uses the High-Low Method to Estimate Its Cost

question 145

Multiple Choice

Taunton Company uses the high-low method to estimate its cost function. The information for 2017 is provided below:

What is the estimated cost function for the above data?

• A) y = 332,000 + 83X
• B) y = 312,000 + 104X
• C) y = 252,000 + 20.00X
• D) y = 92.00X

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Definitions:

Total Fixed Costs

Expenses that do not change with the level of production or sales over a short period, including rent, insurance, and salaries.

Activity Level

In cost accounting, this refers to the volume of production or operations, impacting variable costs and potentially influencing budgeting and performance measures.

Contribution Margin

The contribution margin is the difference between sales revenue and variable costs, showing how much revenue contributes to fixed costs and profit.

Variable Costs

Expenditures that fluctuate based on the production levels or the number of sales.