Pearson Electric Company Uses the High-Low Method to Analyze Mixed

question 3

Multiple Choice

Pearson Electric Company uses the high-low method to analyze mixed costs.The following information relates to the production data for the first six months of the year.
How should the cost function be properly stated?

• A)Y = $6,025 + $2.00H.
• B)Y = $6,520 + $3.00H.
• C)Y = $6,085 + $2.00H.
• D)Y = $6,250 + $3.00H. Unit variable cost = ($9,460 - $7,300)/(980 - 260)= $3.00.Fixed cost = $9,460 - (980 x $3.00)= $6,520 or $7,300 - (260 x $3.00)= $6,520

---

Definitions:

Fixed Cost

A cost that does not change with an increase or decrease in the number of goods or services produced or sold.

Production Costs

Direct costs associated with the manufacturing of goods, including labor, materials, and overhead expenses.

Variable Manufacturing Costs

Expenses that vary directly with the level of production, such as raw materials and labor.

Book Value

The net value of a company's assets, calculated by subtracting its liabilities from its total assets.