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High-Low Profit Equation

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PROBLEM P4-9 - High-Low, Profit Equation
Rhetorix, Inc. produces stereo speakers. Each unit (a pair of speakers) sells for $900 Below is
information on production/sales and costs for 2010.

"Production and
Sales in Units" "Production
Costs" "Selling and
Admin. Costs"
January 105 $88,860 $23,570
February 117 97,600 25,200
March 97 83,007 22,495
April 106 89,600 23,720
May 115 96,200 24,950
June 125 103,500 26,250
July 128 105,670 26,690
August 132 108,550 27,200
September 138 112,978 28,030
October 126 104,200 26,400
November 124 102,750 26,150
December 108 91,050 23,990
Total 1,421 $1,183,965 $304,645
Average cost per unit $833.19141 $214.38776


a. Use the high-low method to identify the fixed and variable cost components for both production costs and selling and administrative costs.

b. The company estimates that production and sales in 2011 will be 1,550 units. Based on this estimate, forecast income before taxes for 2011.

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Solution Summary

The solution examines the high-low and profit equations. It assists with identifying the fixed and variable cost components for both production costs and selling and administrative costs.

Solution Preview

Please see Excel attachment for full solution.

a. High low method
production costs
variable costs per unit=(difference in costs/difference in unit)
therefore fixed costs
total ...

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