The following data pertains to activity and utility costs for two recent years: $\begin{array}{lrr}
& \text { Year 2 } & \text { Year 1 } \
\text { Activity level in units } & 10,000 & 6,000 \
\text { Utilities cost observed } & \$ 12,000 & \$ 9,000
\end{array}$ Using the high-low method, the cost formula for utilities is:
A)$1.50 per unit
B)$1.20 per unit
C)$3,000 plus $3.00 per unit
D)$4,500 plus $0.75 per unit

Question

The following data pertains to activity and utility costs for two recent years: $\begin{array}{lrr} 
& \text { Year 2 } & \text { Year 1 } \
\text { Activity level in units  } & 10,000 & 6,000 \
\text { Utilities cost observed  } & \$ 12,000 & \$ 9,000
\end{array}$ Using the high-low method, the cost formula for utilities is:
A)$1.50 per unit
B)$1.20 per unit
C)$3,000 plus $3.00 per unit
D)$4,500 plus $0.75 per unit

Quizplus · Accepted Answer

The high-low method calculates the variable cost per unit as (12,000 - 9,000) / (10,000 - 6,000) = $0.75 per unit. The fixed cost is calculated by taking the total cost at the high level and subtracting the variable cost (10,000 units * $0.75) = $7,500, resulting in a fixed cost of $4,500. Thus, the cost formula is $4,500 plus $0.75 per unit.

The Following Data Pertains to Activity and Utility Costs for Two