SUPPLEMENTARY QUESTION A sporting goods company produces bike helmets. The manager has looked at the costs for two of the months of production and notices that on the 'slowest' (lowest production) month, the AVERAGE (or UNIT) Cost is $20 per unit when only 10,000 units were made, but in the busiest month (highest production) month, the AVERAGE Cost is only $8 per unit in the month when 50,000 units were produced.

The manager comes to you as the Management Accountant and tells you, he needs accurate costs so he can quote a wholesaler for a one-off order for 5000 units. He wants to mark up the cost 50% to estimate the sell price.

Use the high-low method to calculate the actual COST BEHAVIOUR and, assuming the quantity will fall within the relevant range of production (where costs are uniform and stable), find the Variable Cost, the Fixed Cost and calculate a sell price based on the 50% markup on Variable Costs.