Farnor, Inc

question 5

Multiple Choice

Farnor, Inc. , would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last four months of operations. Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to:

• A)$53.46
• B)$0.00
• C)$3.40
• D)$48.00

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Definitions:

Periodic Method

An accounting system where inventory values and cost of goods sold are determined at the end of an accounting period.

Cost of Goods Sold

Costs directly linked to the manufacturing of products sold by a business, encompassing the expenses of materials and labor specifically employed in the product's production.

Gross Profit

The difference between sales revenue and the cost of goods sold before deducting overheads, payroll, taxation, and interest payments.

Periodic Inventory System

An inventory accounting system where stock levels are updated at regular intervals, not continuously.