High-Low Method to Determine Fixed Cost and Variable Rate

Dohini Manufacturing Company had the following 12 months of data on purchasing cost and number of purchase orders.

Required:

1. Determine the high point and the low point.

Month with high number of purchase orders	-
Month with low number of purchase orders	-

2. Calculate the variable rate for purchasing cost based on the number of purchase orders. (Round to the nearest cent.) $ per purchase order

3. Calculate the fixed monthly cost of purchasing. $

4. Write the cost formula for the purchasing activity showing the fixed cost and the variable rate.

Total purchasing cost

=

$

+

($

x

- Select your answer -Units Months Purchase ordersVariable rate Fixed costMixed costItem 7 )

5. If Dohini Manufacturing Company estimates that next month will have 430 purchase orders, what is the total estimated purchasing cost for that month?

$

6. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,340 purchase orders? What will estimated total purchasing cost be? $

What is the total fixed purchasing cost? $

Why doesn't it equal the fixed cost calculated in Requirement 3 above?