Chen Corp. uses the high-low method to estimate how its costs vary with levels of production. For the year, its high production was 50,000 units in a day, at a cost of $900,000, and its low production was 30,000 units, at a cost of $600,000. Its variable cost per unit is
A) Zero
B) 10
C) 15
D) 20

Question

Quizplus · Accepted Answer

The variable cost per unit is calculated by taking the difference in total costs divided by the difference in production levels: ($900,000 - $600,000) / (50,000 - 30,000) = $300,000 / 20,000 = $15 per unit.

Chen Corp Uses the High-Low Method to Estimate How Its Costs