Bacho Corporation reports that at an activity level of 5,400 units, its total variable cost is $416,934 and its total fixed cost is $142,560.
-What would be the total variable cost at an activity level of 5,500 units? Assume that this level of activity is within the relevant range.
A) $424,655
B) $559,494
C) $416,934
D) $145,200

Question

Quizplus · Accepted Answer

Since variable costs are expected to increase with increased activity, we can use the high-low method to estimate the variable cost at an activity level of 5,500 units. Using the information given, the variable cost per unit is:
($416,934 - $142,560) / (5,400 units) = $47.34 per unit
Therefore, at 5,500 units, the total variable cost would be:
($47.34 per unit) x (5,500 units) = $260,370
Adding this to the fixed cost gives a total cost of:
$142,560 + $260,370 = $403,930
which is closest to answer choice A, $424,655.

Bacho Corporation Reports That at an Activity Level of 5,400