The following data pertain to activity and utilities costs for two recent years: Year 2 Year 1Activity Level in Units 12,000 8,000Utilities Cost $15,000 $12,000Using the high-low method, what is the variable cost per unit for utilities?Multiple Choice$1.25 per unit.$1.50 per unit.$1.33 per unit.$0.75 per unit.
Question
The following data pertain to activity and utilities costs for two recent years: Year 2 Year 1Activity Level in Units 12,000 8,000Utilities Cost 12,000Using the high-low method, what is the variable cost per unit for utilities?Multiple Choice1.50 per unit.0.75 per unit.
Solution
To calculate the variable cost per unit using the high-low method, we first need to find the variable cost rate. The formula for this is:
Variable cost rate = (High cost - Low cost) / (High activity level - Low activity level)
From the data given, the high cost is 12,000 (Year 1), the high activity level is 12,000 units (Year 2), and the low activity level is 8,000 units (Year 1).
Substituting these values into the formula gives:
Variable cost rate = (12,000) / (12,000 units - 8,000 units) = 0.75 per unit
So, the variable cost per unit for utilities is $0.75 per unit.
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