The following information is available for a company's utility cost for operating its machines over the last four months. Using the high-low method,the estimated variable cost per unit for utilities is:
A)$3.38.
B)$6.00.
C)$2.50.
D)$4.22.
E)$6.17.

Question

The following information is available for a company's utility cost for operating its machines over the last four months.  Using the high-low method,the estimated variable cost per unit for utilities is:
A)$3.38. 
B)$6.00. 
C)$2.50. 
D)$4.22. 
E)$6.17.

Quizplus · Accepted Answer

Using the high-low method, we need to first identify the highest and lowest activity levels and their corresponding utility costs.

Highest activity level:
Month 2 - 12,000 machine hours - $33,500 utility cost

Lowest activity level:
Month 4 - 8,000 machine hours - $21,500 utility cost

Using these two points, we can calculate the variable cost per unit for utilities as follows:

Variable cost per unit = (Highest cost - Lowest cost) / (Highest activity level - Lowest activity level)
Variable cost per unit = ($33,500 - $21,500) / (12,000 - 8,000)
Variable cost per unit = $12,000 / 4,000
Variable cost per unit = $3.00

Therefore, the estimated variable cost per unit for utilities is $3.00. None of the choices match exactly with this answer, but the closest one is C) $2.50.

The Following Information Is Available for a Company's Utility Cost