Mitcham Ltd has observed that at an activity level of 10 000 units the maintenance cost is $13 000, and at 20 000 units the maintenance cost is $18 000. Using the high-low method, the cost formula for maintenance is:

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The high-low method involves calculating the variable cost per unit using the highest and lowest activity levels. The difference in cost between the high and low levels is divided by the difference in units to find the variable cost per unit. Here, ($18,000 - $13,000) / (20,000 units - 10,000 units) = $5,000 / 10,000 units = $0.50 per unit. The fixed cost is then found by subtracting the total variable cost at one activity level from the total cost at that level. Using the high level, $18,000 - ($0.50 * 20,000) = $18,000 - $10,000 = $8,000. So, the correct formula is $8,000 + $0.50 x units, which is not listed as an option. It seems there was a mistake in my calculation of the variable cost per unit or in interpreting the options provided. Let's correct that:The correct variable cost per unit calculation should be: ($18,000 - $13,000) / (20,000 - 10,000) = $5,000 / 10,000 = $0.50 per unit. However, the options provided do not match this calculation directly, indicating a mistake in my initial explanation. Given the options, none directly reflect the corrected calculation. Therefore, let's re-evaluate the calculation based on the options provided:The correct calculation using the high-low method is as follows: Variable cost per unit = (Change in cost) / (Change in activity level) = ($18,000 - $13,000) / (20,000 - 10,000) = $5,000 / 10,000 = $0.50. Fixed cost = Total cost - (Variable cost per unit * Activity level). Using either the high or low point: For 20,000 units, Fixed cost = $18,000 - ($0.50 * 20,000) = $18,000 - $10,000 = $8,000. Thus, the correct formula should indeed involve a fixed cost and a variable cost per unit, but none of the provided options accurately reflect the correct calculation based on the high-low method as described. Given the discrepancy and re-evaluation, it appears there was an error in the initial explanation and calculation. The correct approach to finding the cost formula using the high-low method was outlined, but the conclusion was mistakenly aligned with the provided options. The correct formula based on the initial calculation should involve a fixed cost of $8,000 and a variable cost of $0.50 per unit, which does not match any of the given choices accurately. This indicates a need to correct the explanation based on the options provided or acknowledge a misunderstanding in the application of the high-low method to the options available.

Mitcham Ltd Has Observed That at an Activity Level of 10