Question

From the table below, use high & low method to determine the total fixed and variable cost per unit.

level of activity	total cost	units of activity
hightest	28000	15000
lowest	22000	10000
diff	6000	5000

From the table below, use the high-low method of cost estimation to determine the total cost at an activity level of 9,000 units.

level of activity	total cost	units of activity
highest	28000	10000
lowest	25000	8000
diff	3000	2000

Answer 1

Variable cost per unit=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

a.Variable cost per unit=(28000-22000)/(15000-10000)

=$1.2 per unit

Total fixed cost=28000-(1.2*15000)=$10,000

B.Variable cost per unit=(28000-25000)/(10000-8000)

=$1.5 per unit

Total fixed cost=28000-(1.5*10000)=$13,000

Hence total cost for 9000 units=Variable cost+Fixed cost

=(1.5*9000)+13000=$26,500.

NOTE:Total fixed cost and variable cost per unit do not change with change in units.