Determine the fixed cost given the following information: Highest level of activity - 880 units at a total cost of $4,800
Lowest level of activity - 240 units at a total cost of $1,600
A)$229
B)$400
C)$2,600
D)$3,200

Question

Quizplus · Accepted Answer

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

Total cost at highest level of activity - Total cost at lowest level of activity = $4,800 - $1,600 = $3,200
Highest level of activity - Lowest level of activity = 880 - 240 = 640
Variable cost per unit = $3,200 ÷ 640 = $5

To find the fixed cost, we can plug in the variable cost per unit and either the highest or lowest level of activity:

Total cost = Fixed cost + (Variable cost per unit x Level of activity)

Using the highest level of activity:

$4,800 = Fixed cost + ($5 x 880) 
$4,800 = Fixed cost + $4,400 
Fixed cost = $400

Therefore, the answer is B) $400.

Determine the Fixed Cost Given the Following Information: Highest Level