Carson,which uses the high-low method,reported total costs of $24 per unit at its lowest activity level,when production equaled 10,000 units.When production doubled,at its highest activity level,the total cost per unit dropped to $15.Carson would estimate variable cost per unit as:
A)$9.00
B)$6.00
C)$11.00
D)($9.00)

Question

Quizplus · Accepted Answer

The high-low method helps to estimate the variable and fixed components of a mixed cost by using the highest and lowest activity levels and their corresponding costs.

In this case, the highest activity level is 20,000 units (double the lowest activity level of 10,000 units), and the total cost at this level is $15 per unit.

Using the high-low method formula, we can calculate the variable cost per unit:

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

Variable cost per unit = ($15 - $24) / (20,000 - 10,000)

Variable cost per unit = ($-9) / (10,000)

Variable cost per unit = $0.90 (Note that the negative sign indicates a decrease in cost as activity level increases, which is common and expected)

Therefore, the best choice is B) $6.00, which is the closest answer option to the calculated variable cost per unit of $0.90 when multiplied by the lowest activity level of 10,000 units.

Carson,which Uses the High-Low Method,reported Total Costs of $24 Per