In applying the high-low method, what is the fixed cost? $$\begin{array} { l c c }
\text { Month } & \text { Miles } &\text { Total Cost } \
\text { January } & 80,000 & \$ 192,000 \
\text { February } & 50,000 & 160,000 \
\text { March } & 70,000 & 188,000 \
\text { April } & 90,000 & 260,000
\end{array}$$
A)$35,000
B)$72,000
C)$28,000
D)$100,000

Question

In applying the high-low method, what is the fixed cost? $$\begin{array} { l c c } 
\text { Month } & \text { Miles } &\text { Total Cost } \
\text { January } & 80,000 & \$ 192,000 \
\text { February } & 50,000 & 160,000 \
\text { March } & 70,000 & 188,000 \
\text { April } & 90,000 & 260,000
\end{array}$$
A)$35,000
B)$72,000
C)$28,000
D)$100,000

Quizplus · Accepted Answer

The fixed cost is the cost that does not change with the level of activity. In this case, the fixed cost is $35,000. This is because the total cost is $192,000 when the miles are 80,000 and the total cost is $160,000 when the miles are 50,000. The difference between these two costs is $32,000, which is the variable cost per mile. The fixed cost is the total cost minus the variable cost per mile times the number of miles. In this case, the fixed cost is $192,000 - $32,000 * 80,000 = $35,000.

In Applying the High-Low Method, What Is the Fixed Cost