A cost is $11,000 at 1,000 units, $12,000 at 2,000 units, and $13,000 at 3,000 units.Using the high-low method, how much is the fixed portion of these costs?

Question

Quizplus · Accepted Answer

The high-low method involves using the difference between the highest and lowest activity levels and their corresponding costs to calculate the variable cost portion.

The highest activity level is 3,000 units with a cost of $13,000, and the lowest activity level is 1,000 units with a cost of $11,000.

The difference in activity levels is 3,000 - 1,000 = 2,000 units, and the difference in costs is $13,000 - $11,000 = $2,000.

Therefore, the variable cost per unit is $2,000 / 2,000 units = $1 per unit.

To calculate the fixed cost portion, we can use either the highest or lowest activity level and their corresponding costs.

Using the highest activity level, the variable cost would be 3,000 units x $1 per unit = $3,000.

Therefore, the fixed cost portion would be $13,000 - $3,000 = $10,000.

Thus, the fixed portion of the cost is $10,000.

A Cost Is $11,000 at 1,000 Units, $12,000 at 2,000