Section 3 High-Low Method (20 marks)

Selected data about Pitkin Company's manufacturing operations at two levels of activity are presented below:

Required: Using the high-low method, estimate the cost formula for manufacturing overhead. Assume that both direct material and direct labour are variable costs. Using your results, estimate the total manufacturing cost at a level of 12,000 units.

Number of Units Produced Total Manufacturing Costs Direct Material Cost per Unit Direct Labour Cost per Unit 10,000 $157,000 $4 $6 15,000 $225,000 $4 $6