Campbell Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During year 2, the high point in activity occurred in June when it produced 201 boats at a total cost of $155,550. The low point in production occurred in January when it produced 36 boats at a total cost of $45,000. Required Use the high-low method to estimate the amount of fixed cost incurred each month by Campbell Boat Company. Determine the total estimated cost if 160 boats are made.

Campbell Boat Company

a) The amount of fixed cost incurred each month by Campbell Boat Company is:

= $20,880.

b) The total estimated cost if 160 boats are made is:

= $128,080.

Explanation:

a) Data and Calculations:

June production = 201 boats at a total cost of $155,550

January production = 36 boats at a total cost of $45,000

Differences  =      165 boats at $110,550

Variable cost per boat = $670 ($110,550/165)

Fixed cost, at the June production level:

Variable costs = $134,670 ($670 * 201)

Fixed costs = $20,880 ($155,550 - $134,670)

Check at January production level of 36 boats:

Variable costs = $24,120 ($670 * 36)

Fixed costs =       20,880 ($45,000 - $24,120)

At 160 boats production level:

Variable costs = $107,200 ($670 * 160)

Fixed costs =         20,880

Total costs =      $128,080

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