McNeil uses the high-low method of estimating costs.McNeil had total costs of $50,000 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 $78,000.What would McNeil estimate its total cost to be if sales equaled 8,000 units?
A)$32,000
B)$52,000
C)$62,000
D)$80,000

Question

Quizplus · Accepted Answer

Using the high-low method, we can first calculate the variable cost per unit:
Variable cost per unit = (Total cost at highest level of activity - Total cost at lowest level of activity) / (Highest level of activity - Lowest level of activity)
Variable cost per unit = ($78,000 - $50,000) / (12,000 - 5,000)
Variable cost per unit = $4

Next, we can use either the highest or lowest level of activity to calculate the fixed costs:
Fixed costs = Total cost at given level of activity - (Variable cost per unit × Given level of activity)
Using the lowest level of activity:
Fixed costs = $50,000 - ($4 × 5,000)
Fixed costs = $30,000

Now, we can use the fixed and variable costs to estimate the total cost at 8,000 units of sales:
Total cost = Fixed cost + (Variable cost per unit × Number of units)
Total cost = $30,000 + ($4 × 8,000)
Total cost = $62,000

Therefore, McNeil would estimate its total cost to be $62,000 if sales equaled 8,000 units. The answer is C.

McNeil Uses the High-Low Method of Estimating Costs