Presented below is the production data for six months of the year showing the mixed costs incurred by Kennedy Company.
$\begin{array}{lll}\text { Month }&\text { Cost }&\text { Units }\
\text { July } & \$ 6,000 & 4,000 \
\text { August } & \$ 10,250 & 6,500 \
\text { September } & \$ 10,500 & 8,000 \
\text { October } & \$ 12,700 & 10,500 \
\text { November } & \$ 14,000 & 12,000 \
\text { December } & \$ 10,850 & 9,000
\end{array}$
Kennedy Company uses the high-low method to analyze mixed costs.The total fixed cost is ________.
A) $2,000
B) $4,500
C) $10,417
D) $10,500

Question

Quizplus · Accepted Answer

The high-low method calculates the variable cost per unit first, then uses it to find the fixed cost. The highest and lowest activity levels are used: November (12,000 units, $14,000) and July (4,000 units, $6,000). The variable cost per unit is ($14,000 - $6,000) / (12,000 - 4,000) = $1. The fixed cost is then calculated using either the high or low point: $14,000 - ($1 * 12,000) = $2,000.

Presented Below Is the Production Data for Six Months of the Year