Rible Company has observed that at an activity level of 8,000 units the cost for maintenance is £15,000, and at 10,000 units the cost for maintenance is £16,500. Using the high-low method, the cost formula for maintenance is
A)£15,000 plus £0.15 per unit.
B)£9,000 plus £0.75 per unit.
C)£1.65 per unit.
D)£1.875 per unit.

Question

Quizplus · Accepted Answer

Using the high-low method, we need to find the variable cost per unit and the fixed cost. 
Variable cost per unit = (cost at high activity level - cost at low activity level) / (high activity level - low activity level) 
= (£16,500 - £15,000) / (10,000 - 8,000) 
= £1.50 per unit 
Fixed cost = cost at low activity level - (variable cost per unit x low activity level) 
= £15,000 - (£1.50 x 8,000) 
= £9,000 
Therefore, the maintenance cost formula is: 
Maintenance cost = £9,000 + (£1.50 x number of units) 
= £9,000 + £0.75 per unit 
The closest option is B.

Rible Company Has Observed That at an Activity Level of 8,000