Answer :
Answer:
See explanation below
Explanation:
Using the high-low method, we can find the variable cost per unit and total fixed costs.
The formula to find the variable cost per unit = [tex]\frac{Highest cost - Lowest cost}{highest number of units - lowest number of units}[/tex]
For example,
500 units = $4,000
600 units = $4,500
The variable cost per unit = [tex]\frac{4,500 - 4,000}{600 - 500}[/tex]
The variable cost per unit = $5
To determine the total fixed cost, we need to use the basic formula of total cost.
Total cost = fixed cost + variable cost
Total cost = fixed cost + variable cost per unit x quantity
In the above example,
we can choose either highest unit activity or least unit activity.
So, using least unit activity,
$4,000 = fixed cost + $5 x 500 units
or, $4,000 = fixed cost + $2,500
or, fixed cost = $1,500