A company uses the High-Low method to estimate costs. High Activity: 10,000 units, Total Cost $120,000 Low Activity: 6,000 units, Total Cost $80,000 What is the estimated total cost at 8,000 units?

Answer options:

$90,000

$100,000

$110,000

$96,000

How to approach this question

1. Calculate Variable Rate = (High Cost - Low Cost) / (High Units - Low Units). 2. Calculate Fixed Cost = High Cost - (High Units × Rate). 3. Plug in new units.

Full Answer

B.$100,000✓ Correct

Variable Cost per Unit = ($120,000 - $80,000) / (10,000 - 6,000) = $10. Fixed Cost = $120,000 - (10,000 × $10) = $20,000. Total Cost at 8,000 units = $20,000 + (8,000 × $10) = $100,000.

Common mistakes

Calculating variable rate but forgetting to add fixed costs; using average cost per unit.

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A company uses the High-Low method to estimate costs. <br/>High Activity: 10,000 units, Total Cost $120,000<br/>Low Activity: 6,000 units, Total Cost $80,000<br/>What is the estimated total cost at 8,000 units?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 5

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