A company uses the high-low method to estimate costs. - High activity month: 10,000 units, Total Cost $120,000 - Low activity month: 6,000 units, Total Cost $80,000 What is the estimated total cost for a month with 8,000 units?

Answer options:

$90,000

$96,000

$100,000

$104,000

How to approach this question

1. Calculate Variable Rate (Change in Cost / Change in Units). 2. Calculate Fixed Cost using High or Low point. 3. Plug in new volume.

Full Answer

C.$100,000✓ Correct

1. Variable Rate = ($120,000 - $80,000) / (10,000 - 6,000) = $10 per unit. 2. Fixed Cost = $120,000 - (10,000 x $10) = $20,000. 3. Estimate for 8,000 units = $20,000 + (8,000 x $10) = $100,000.

Common mistakes

Calculating simple average; arithmetic errors.

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A company uses the high-low method to estimate costs. <br/>- High activity month: 10,000 units, Total Cost $120,000<br/>- Low activity month: 6,000 units, Total Cost $80,000<br/><br/>What is the estimated total cost for a month with 8,000 units?

How to approach this question

Full Answer

Common mistakes

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