Refer to Kelowna Company. What is the value of an independent variable used to calculate the cost line when using the high-low method?
A) 4,000
B) 5,430
C) 25,160
D) 27,950

Question

Quizplus · Accepted Answer

The high-low method involves using the highest and lowest values of the independent variable to calculate the variable cost per unit. Based on the information provided in the Kelowna Company case, the independent variable values for the highest and lowest levels of production are given as follows:
- Highest level of production: 4,300 units at a cost of $33,080
- Lowest level of production: 2,200 units at a cost of $22,800

The change in cost is $33,080 - $22,800 = $10,280
The change in units is 4,300 - 2,200 = 2,100

Therefore, the variable cost per unit is calculated as $10,280 ÷ 2,100 = $4.90

Using this information, we can calculate the fixed cost component of the cost equation as follows:
Total cost at highest level of production = Fixed cost + Variable cost per unit × Highest level of production
$33,080 = Fixed cost + $4.90 × 4,300
Fixed cost = $10,630

Thus, the cost equation for Kelowna Company is:
Total cost = $10,630 + $4.90 × Number of units

Therefore, the value of the independent variable used to calculate the cost line when using the high-low method is 5,430 units.