In applying the high-low method what is the unit variable cost? $\begin{array}{ccc}
\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) $2.88
B) $2.50
C) $3.20
D) Cannot be determined from the information given.

Question

In applying the high-low method what is the unit variable cost? $\begin{array}{ccc}
 \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) $2.88
B) $2.50
C) $3.20
D) Cannot be determined from the information given.

Quizplus · Accepted Answer

The unit variable cost is calculated by subtracting the low total cost from the high total cost, and then dividing that difference by the difference in production levels between the high and low points.

Using the given data, the high point has a production level of 12,000 and a total cost of $39,600. The low point has a production level of 8,000 and a total cost of $25,000.

The difference in total cost is $39,600 - $25,000 = $14,600. 
The difference in production level is 12,000 - 8,000 = 4,000.

Therefore, the unit variable cost is $14,600 / 4,000 = $3.65.

The answer choices all provide a unit variable cost, but only option B ($2.50) is close to the calculated amount of $3.65. Therefore, B is the best choice.

In Applying the High-Low Method What Is the Unit Variable