At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is?
A)$1,200 plus $1.10 per unit.
B)$600 plus $1.10 per unit.
C)$1.16 per unit.
D)$1.20 per unit.

Question

Quizplus · Accepted Answer

The high-low method involves calculating the variable cost per unit using the highest and lowest activity levels. The difference in cost between the high and low levels is divided by the difference in units to find the variable cost per unit. Here, the variable cost per unit is ($11,600 - $7,200) / (10,000 - 6,000) = $4,400 / 4,000 = $1.10 per unit. To find the fixed cost, subtract the total variable cost at one activity level from the total cost at that level. Using the low level of activity: $7,200 - ($1.10 * 6,000) = $7,200 - $6,600 = $600. Therefore, the cost formula is $600 plus $1.10 per unit.

At an Activity Level of 6,000 Units the Cost for Maintenance