Total costs at the low point were $340,000 when 30,000 units were produced and total costs at the high point were $400,000 when 40,000 units were produced.Using the high-low method,what are the estimated total costs for a production level of 36,000 units?
A)$400,000
B)$240,000
C)$160,000
D)$376,000
E)None of the answer choices is correct.

Question

Quizplus · Accepted Answer

Using the high-low method:

Variable cost per unit = (Total high point cost - Total low point cost) / (High point units - Low point units)
Variable cost per unit = ($400,000 - $340,000) / (40,000 - 30,000)
Variable cost per unit = $6 per unit

Fixed cost = Total low point cost - (Variable cost per unit x Low point units)
Fixed cost = $340,000 - ($6 x 30,000)
Fixed cost = $160,000

Total cost at 36,000 units = Fixed cost + (Variable cost per unit x 36,000)
Total cost at 36,000 units = $160,000 + ($6 x 36,000)
Total cost at 36,000 units = $376,000

Therefore, the estimated total costs for a production level of 36,000 units is $376,000, which is option D.

Total Costs at the Low Point Were $340,000 When 30,000