Question - Mears Production Company makes several products and sells them for an average price of $90. Mears' accountant is considering two different approaches to estimating the firm's total monthly cost function, account analysis and high-low. In both cases, she used units of production as the independent variable. For the account analysis approach, she developed the cost function by analyzing each cost item in June, when production was 1,850 units. The following are the results of that analysis:
|
Cost Item
|
Total Cost
|
Fixed Cost
|
Variable Cost
|
|
Direct materials
|
$6,660
|
$0
|
$6,660
|
|
Direct labor
|
$9,250
|
$0
|
$9,250
|
|
Factory overhead
|
$9,505
|
$3,030
|
$6,475
|
|
Selling expenses
|
$5,190
|
$3,340
|
$1,850
|
|
Administrative expenses
|
$3,150
|
$3,150
|
$0
|
|
Total expenses
|
$33,755
|
$9,520
|
$24,235
|
For the high-low method, she developed the cost function using the same data from June and data from August, when production was 2,500 units and total costs were $43,443. After developing the two cost functions, the accountant used them to make predictions for the month of October, when production was expected to be 2,300 units.
REQUIRED - Using the high-low method, what was the accountant's estimate of total fixed costs for October?