Meadow,which uses the high-low method,had total costs of $500,000 at its lowest level of activity when 5,000 units were sold.When,at its highest level of activity,sales equaled 12,000 units,total costs were $780,000.Meadow would estimate fixed costs as
A)$280,000.
B)$300,000.
C)$640,000.
D)$1,200,000.

Question

Quizplus · Accepted Answer

Using the high-low method, we first need to find the variable cost per unit:
Variable cost per unit = (Total cost at highest level - Total cost at lowest level) / (Highest level of activity - Lowest level of activity)
Variable cost per unit = ($780,000 - $500,000) / (12,000 units - 5,000 units)
Variable cost per unit = $280,000 / 7,000 units
Variable cost per unit = $40

Next, we can use the total cost equation to solve for fixed costs:
Total costs = Fixed costs + (Variable cost per unit × Units sold)
$500,000 = Fixed costs + ($40 × 5,000 units)
$500,000 = Fixed costs + $200,000
Fixed costs = $500,000 - $200,000
Fixed costs = $300,000

Therefore, the estimated fixed costs for Meadow is $300,000.

Meadow,which Uses the High-Low Method,had Total Costs of $500,000 at Its