Question

Kendra's Corp. total utility costs during the past year were $1,200 during its highest month and $600 during its lowest month. These costs corresponded with 10,000 units of production during the high month and 2,000 units during the low month. What are the fixed and variable components of its utility costs using the high-low method?: a. $0.075 variable and $450 fixed b. $0.12 variable and $0 fixed c. $0.30 variable and $O fixed d. $0.06 variable and $600 fixed

Answer 1

Answer:

A) $0.075 variable and $450 fixed

Explanation:

to calculate Kendra's fixed and variable components using the high-low method we can use two separate formulas:

variable costs = (highest utility cost - lowest utility cost) / (highest output - lowest output) = ($1,200 - $600) / (10,000 - 2,000) = $600 / 8,000 = $0.075 per unit

fixed costs = highest cost - (highest output x variable cost)  = $1,200 - (10,000 x $0.075)  = $1,200 - $750 = $450