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# High low inventory method; COGS ; average cost per unit

1. Production in 2009 for Jensen Jet Ski was at its highest point in the month of June when 40 units were produced at a total cost of \$600,000. The low point in production was in January when only 15 units were produced at a cost of \$340,000. The company is preparing a budget for 2008 and needs to project expected fixed cost for the budget year.

a) Using the high/low method, the projected variable rate per unit is:

b) Using the high/low method, the projected amount of fixed cost is:

2. During its first year of operations, TRC Company paid \$4,000 for direct materials and \$8,500 for production workersÃ¢?? wages. Indirect manufacturing costs on the production facilities amounted to \$7,500 while general, selling, and administrative expenses totaled \$3,000. The company produced 5,000 units and sold 4,000 units at a price of \$7.50 a unit.

What is the amount of Cost of Goods Sold for the first year?

3. During its first year of operations, GENERATION Company paid \$23,000 for direct materials and \$18,500 for production workers' wages. Indirect manufacturing costs on the production facilities amounted to \$16,500 while general, selling, and administrative expenses totaled \$3,000. The company produced 16,000 units and sold 14,000 units at a price of \$8.50 a unit.

What is the average cost per unit manufactured?

Please show detailed step by step of how you arrived at answers.

#### Solution Preview

Question 1

Difference in cost of high & low production = 600000-340000 = \$260,000
Difference in Volume = 40-15 = 25

Variable cost per unit = 260,000-25 = ...

#### Solution Summary

The solution computes variable rate per unit & amount of fixed cost using the high/low method for Jensen Jet Ski, amount of Cost of Goods Sold for the first year for TRC Company and the average cost per unit manufactured for Generation Company.

\$2.19