Hadrana Corporation reports that at an activity level of 5,500 units, its total variable cost is $275,330 and its total fixed cost is $86,240. What would be the total variable cost at an activity level of 5,600 units? Assume that this level of activity is within the relevant range.
A)$275,330
B)$361,570
C)$87,808
D)$280,336

Question

Quizplus · Accepted Answer

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

Total variable cost at 5,500 units - Total fixed cost = Total variable cost
$275,330 - $86,240 = $189,090

Variable cost per unit = Total variable cost / Activity level
$189,090 / 5,500 = $34.38 per unit

To find the total variable cost at 5,600 units:

Total variable cost = Variable cost per unit x Activity level
Total variable cost = $34.38 x 5,600 = $192,288

Therefore, the best choice is D - $280,336.

Hadrana Corporation Reports That at an Activity Level of 5,500