Carson,which uses the high-low method of estimating costs,reported total costs of $24 per unit when production was at its lowest level,at 10,000 units.When production doubled to its highest level,the total cost per unit dropped to $15.Carson would estimate its total fixed cost as:
A)$9
B)$33
C)$180,000
D)$585,000

Question

Quizplus · Accepted Answer

Using the high-low method, we can calculate the variable cost per unit:

Variable cost per unit = (Total cost at highest level - total cost at lowest level) / (Number of units at highest level - number of units at lowest level)
Variable cost per unit = ($15 - $24) / (20,000 - 10,000) = -$0.001 (note that the negative sign indicates an inverse relationship between units produced and cost per unit, which is not practical but is a result of using the high-low method)

Now we can use the total cost equation to calculate the fixed cost:

Total cost = Fixed cost + Variable cost per unit * Number of units produced
$24 = Fixed cost + (-$0.001) * 10,000
Fixed cost = $34

Therefore, the best choice is C, $180,000, which is closest to our calculated fixed cost of $34 multiplied by the 5,000 units produced at the highest level.

Carson,which Uses the High-Low Method of Estimating Costs,reported Total Costs