At an activity level of 6,000 units,the cost for maintenance is $7,200;at 10,000 units,the cost for maintenance is $11,600.Using the high-low method,what is the cost formula for maintenance?
A) $1.16 per unit.
B) $1.20 per unit.
C) $600 plus $1.10 per unit.
D) $1,200 plus $1.10 per unit.FC = 11,600 - 10,000 * .75 = $600

Question

Quizplus · Accepted Answer

Using the high-low method, we need to find the variable cost per unit and fixed cost component of the maintenance cost.

Variable cost per unit = (Cost at high activity level - Cost at low activity level) / (High activity level - Low activity level)

Variable cost per unit = ($11,600 - $7,200) / (10,000 - 6,000) = $1.10 per unit

To find the fixed cost component, we can plug in the value of variable cost per unit into either of the two data points:

$7,200 = Fixed cost + (6,000 units * $1.10 per unit) 
$11,600 = Fixed cost + (10,000 units * $1.10 per unit)

Solving for fixed cost, we get:

Fixed cost = $600

Therefore, the cost formula for maintenance is:

Maintenance cost = $600 + ($1.10 per unit)

At an Activity Level of 6,000 Units,the Cost for Maintenance