Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to calculate Smithson's fixed costs per month. Do not round your intermediate calculations.

Question

Quizplus · Accepted Answer

Using the high-low method, we first calculate the variable cost per unit:
Variable cost per unit = (Cost at high activity level - Cost at low activity level) / (High activity level - Low activity level)
Variable cost per unit = ($22,800 - $10,050) / (1,900 - 1,100) = $9.75

Next, we can use either the high or low activity level and plug in the variable cost per unit to solve for the fixed cost. Let's use the high activity level:
Total cost = Fixed cost + (Variable cost per unit x Activity level)
$22,800 = Fixed cost + ($9.75 x 1,900)
Fixed cost = $22,800 - $18,525 = $4,275

Therefore, Smithson's fixed costs per month are $4,275, and the best choice is A.

Given the Following Cost and Activity Observations for Smithson Company's