Question

In applying the high-low method, what is the fixed cost?

Month	Miles	Total Cost
January	76000	$182000
February	66000	160000
March	68000	168000
April	90000	200000

Answer 1

Variable cost = (Cost at highest activity - Cost at lowest activity) / (Highest activity - Lowest activity)

= ($200,000 - $160,000) / (90,000 - 66,000)

= $40,000 / 24,000

= $1.67 per mile or (5/3)

Fixed cost at highest activity

Fixed cost = Total cost - Variable cost

= $200,000 - [(5/3) * 90,000]

= $200,000 - $150,000

= $50,000

or

Fixed cost at lowest activity

Fixed cost = Total cost - Variable cost

= $160,000 - [(5/3) * 66,000]

= $160,000 - $110,000

= $50,000

Fixed cost = $50,000