Question

Question 1 (1 point) Thomas Train has collected the following information over the last six months. Month Units Total costs produced March 10,000 $25,600 April 12,000 26,200 May 19.400 29.600 June 13,000 26,450 July 12,000 26,000 August 15,000 26,500 Using the high-low method, what is the variable cost per unit? Round to two decimal places, Your Answer:

Answer 1

We can compute the variable cost per unit using high-low method with following equation:

$\textup{Variable cost per unit} =\frac{\textup{ Total cost for highest activity - Total cost for lowest activity}}{\textup{High Activity units - Low Activity Units}}$

In above table, we can see, Highest activity is in May i.e 19,400 units and Lowest activity is in March i.e 10,000 units

Putting the values:

$\textup{Variable cost per unit} =\frac{\textup{ 29,600 - 25,600}}{\textup{19,400 - 10,000}}$

$\textup{Variable cost per unit} = \frac{4,000}{9,400}$

$\textup{Variable cost per unit} = 0.4255319$

$\bg_green \large \textup{Variable cost per unit} = \$0.43$

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.