Inspection costs at one of Krivanek Corporation's factories are listed below:
Management believes that inspection cost is a mixed cost that depends on units produced.
-Using the high-low method,the estimate of the variable component of inspection cost per unit produced is closest to:
A)$3.15
B)$0.32
C)$3.40
D)$13.91

Question

Inspection costs at one of Krivanek Corporation's factories are listed below:  
Management believes that inspection cost is a mixed cost that depends on units produced.
-Using the high-low method,the estimate of the variable component of inspection cost per unit produced is closest to:
A)$3.15 
B)$0.32 
C)$3.40 
D)$13.91

Quizplus · Accepted Answer

The high-low method is a cost estimation technique that uses the highest and lowest levels of activity to estimate the variable cost per unit. In this case, the highest level of activity is 10,000 units and the lowest level of activity is 5,000 units. The total inspection cost at the highest level of activity is $34,000 and the total inspection cost at the lowest level of activity is $17,000. The variable cost per unit is calculated as follows:Variable cost per unit = (Total cost at highest level of activity - Total cost at lowest level of activity) / (Highest level of activity - Lowest level of activity)Variable cost per unit = ($34,000 - $17,000) / (10,000 units - 5,000 units)Variable cost per unit = $3.15

Inspection Costs at One of Krivanek Corporation's Factories Are Listed