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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

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.

Month Purchasing Cost Number of Purchase Orders
January $18,860 370
February 18,040 330
March 19,250 370
April 18,050 410
May 19,345 400
June 19,500 450
July 19,670 460
August 20,800 560
September 19,430 440
October 20,020 500
November 18,800 470
December 19,340 480

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. Round variable rate to the nearest cent.

Total purchasing cost = $ + ($ x )

5. If Dohini Manufacturing Company estimates that next month will have 420 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 5,350 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?

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