Determine the fixed cost given the following information: Lowest level of activity - 200 units at a total cost of $600
Highest level of activity - 800 units at a total cost of $1,800
A)$200
B)$360
C)$480
D)$600

Question

Quizplus · Accepted Answer

Fixed costs remain constant regardless of the level of production or activity. To find the fixed cost, we can use the high-low method. First, calculate the variable cost per unit using the highest and lowest levels of activity. The change in cost divided by the change in units gives the variable cost per unit. Then, apply the variable cost per unit to one of the activity levels to find the total variable cost at that level, and subtract it from the total cost to find the fixed cost.Change in cost = $1,800 - $600 = $1,200Change in units = 800 - 200 = 600 unitsVariable cost per unit = $1,200 / 600 = $2 per unitUsing the lowest level of activity to find the fixed cost:Total variable cost at 200 units = 200 units * $2/unit = $400Fixed cost = Total cost at 200 units - Total variable cost at 200 units = $600 - $400 = $200

Determine the Fixed Cost Given the Following Information: Lowest Level