Leighlow Company has observed that at an activity level of 4,000 units the cost for maintenance is $30,000, and at 6,000 units the cost for maintenance is $40,000. Using the high-low method, the cost formula for maintenance is:
A) $10,000 plus $5.00 per unit
B) $8,000 plus $4.00 per unit
C) $4.67 per unit
D) $5.50 per unit

Question

Quizplus · Accepted Answer

The high-low method involves calculating the variable cost per unit by dividing the change in total cost by the change in activity level. Here, the change in cost ($40,000 - $30,000 = $10,000) divided by the change in units (6,000 - 4,000 = 2,000 units) gives a variable cost of $5 per unit. To find the fixed cost, subtract the total variable cost at one activity level from the total cost at that level. Using 4,000 units: $30,000 - ($5 * 4,000) = $10,000. Thus, the cost formula is $10,000 plus $5.00 per unit.

Leighlow Company Has Observed That at an Activity Level of 4,000