During a year, Teri's monthly sales compensation ranged between $19,500 and $26,500 per month and...
Question:
During a year, Teri's monthly sales compensation ranged between $19,500 and $26,500 per month and units sold ranged between 1,400 and 2,200 units for those same months.
Required:
Use the high–low method to determine Teri's monthly salary and commission rate per unit sold and then calculate the total number of units sold in a year when Teri's total compensation amounted to $235,750. (Round your "Commission rate" to 2 decimal places.)
Mixed cost formula
Mixed costs exhibit both variable and fixed components in its cost behavior. This means total mixed cost will change as activity changes but not in a direct or proportional relationship.
To estimate the mixed cost one method to use is the high-low method. This method takes into account the high activity data point and the low activity data point to estimate the mixed cost, assuming there is a linear behavior:
C=vx + f
where C is total mixed cost
v is variable cost per unit
x is activity level
f is total fixed cost
To determine the variable cost per unit we use the following formula:
v = (y2-y1) / (x2-x1)
Once we have determined the v we can sub it and one of the points into our mixed cost formula to solve for f.
Answer and Explanation: 1
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View this answerv = ($26,500 - 19,500) / (2,200 units - 1,400 units)
v = $8.75/unit
C = $8.75x + f
$26,500 = $8.75 * (2,200 units) + f $7,250 = f
C= $8.75x +...
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High-Low Method Accounting | Definition, Formula & Examples
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Chapter 22 / Lesson 29
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Understand the high-low method in accounting. Learn the formulas for the high-low method. Learn how to compute variable cost per unit, fixed cost, and cost model.
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