Strait Co. manufactures office furniture. During the most productive month of the year, 3,000 desks were manufactured at a total cost of $59,000. In the month of lowest production, the company made 1,125 desks at a cost of $38,000. Using the high-low method of cost estimation, total fixed costs are

A) $21,000
B) $25,400
C) $42,000
D) $13,000

The high-low method involves calculating the variable cost per unit using the highest and lowest levels of activity. The formula for the variable cost per unit is (Cost at highest activity - Cost at lowest activity) / (Highest activity level - Lowest activity level). Here, it is ($59,000 - $38,000) / (3,000 desks - 1,125 desks) = $21,000 / 1,875 desks = $11.20 per desk. To find the total fixed costs, we use the total cost at either activity level and subtract the total variable cost at that level. Using the lowest level of production: Total cost at lowest level = Fixed costs + (Variable cost per unit * Number of units at lowest level) => $38,000 = Fixed costs + ($11.20 * 1,125) => $38,000 = Fixed costs + $12,600 => Fixed costs = $38,000 - $12,600 = $25,400.