Reference: 06-08
Wilson Company's activity for the first six months of the current year is as follows: $$\begin{array} { | l | l | l | }
\hline & \text { June } & \text { July } \
\hline \text { Activity level in units } & 10,000 & 20,000 \
\hline & & \
\hline \text { Variable costs } & \$ 20,000 & \$ ? \
\hline \text { Fixed costs } & 15,000 & ? \
\hline \text { Mixed costs } & 10,000 & ? \
\hline \text { Total costs } & \$ 45,000 & \$ 70,000 \
\hline
\end{array}$$
-Using the high-low method, the fixed portion of the electrical cost each month would be
A)$190.
B)$760.
C)$400.
D)$280.

Question

Reference: 06-08
Wilson Company's activity for the first six months of the current year is as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { June } & \text { July } \
\hline \text { Activity level in units } & 10,000 & 20,000 \
\hline & & \
\hline \text { Variable costs } & \$ 20,000 & \$ ? \
\hline \text { Fixed costs } & 15,000 & ? \
\hline \text { Mixed costs } & 10,000 & ? \
\hline \text { Total costs } & \$ 45,000 & \$ 70,000 \
\hline
\end{array}$$
-Using the high-low method, the fixed portion of the electrical cost each month would be
A)$190.
B)$760.
C)$400.
D)$280.

Quizplus · Accepted Answer

The high-low method calculates the variable cost per unit first, then the fixed cost. The change in total cost is $25,000 ($70,000 - $45,000) for a change in activity of 10,000 units (20,000 - 10,000), giving a variable cost per unit of $2. The fixed cost is then calculated by subtracting the total variable cost at either activity level from the total cost. At 10,000 units, variable costs are $20,000, so fixed costs are $45,000 - $20,000 = $25,000. At 20,000 units, variable costs are $40,000, so fixed costs are $70,000 - $40,000 = $30,000. The fixed portion of the electrical cost is the difference between these fixed costs, which is $400.

Reference: 06-08 Wilson Company's Activity for the First Six Months

Reference: 06-08
Wilson Company's Activity for the First Six Months