Inspection costs at one of Pulley 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 fixed component of inspection cost per month is closest to:
A) $2,749
B) $10,519
C) $9,980
D) $10,597

Question

Inspection costs at one of Pulley 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 fixed component of inspection cost per month is closest to:
A) $2,749 
B) $10,519 
C) $9,980 
D) $10,597

Quizplus · Accepted Answer

The fixed component of inspection cost per month is closest to $2,749. This is because the high-low method calculates the fixed cost by taking the difference between the highest and lowest total costs and dividing by the difference between the highest and lowest activity levels. In this case, the highest total cost is $13,268 and the lowest total cost is $2,749. The highest activity level is 1,200 units and the lowest activity level is 200 units. Therefore, the fixed cost is ($13,268 - $2,749) / (1,200 - 200) = $2,749.

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