Use the information below to answer the following question(s).The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable.Skip Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.
-The cost function would be stated as
A)y = $13,386 + $0.46x.
B)y = $10,680 + $0.38x.
C)y = $5,056 + $2.16x.
D)y = $1,800 + $2.16x.
E)y = $1,800 + $2.60x.

Question

Use the information below to answer the following question(s).The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable.Skip Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. 
-The cost function would be stated as
A)y = $13,386 + $0.46x. 
B)y = $10,680 + $0.38x. 
C)y = $5,056 + $2.16x. 
D)y = $1,800 + $2.16x. 
E)y = $1,800 + $2.60x.

Quizplus · Accepted Answer

To use the high-low method, we need to identify the highest and lowest levels of activity and the total costs associated with each level. We can then use this information to calculate the variable cost per unit and the total fixed cost.

From the data given, the highest level of activity is 18,000 units with a total cost of $51,000, and the lowest level of activity is 10,000 units with a total cost of $27,800. Using this information, we can calculate the variable cost per unit as:

Variable cost per unit = (Total cost at highest level - Total cost at lowest level) / (Highest level of activity - Lowest level of activity)

Variable cost per unit = ($51,000 - $27,800) / (18,000 - 10,000) = $2.60

To calculate the total fixed cost, we can use either the highest or lowest level of activity and the variable cost per unit. Using the lowest level of activity:

Total fixed cost = Total cost - (Variable cost per unit x Activity level)

Total fixed cost = $27,800 - ($2.60 x 10,000) = $1,800

Therefore, the cost function is y = $1,800 + $2.60x, where x is the level of activity and y is the total cost. The best choice is E.

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