Question

Cardinal uses the high-low method of estimating costs. Cardinal had total costs of $26,410 at its lowest level of activity, when 10,000 units were sold. When, at its highest level of activity, sales equaled 15,900 units, total costs were $39,390. Cardinal would estimate variable cost per unit as:

Answer 1

Answer:

Estimated variable cost per unit is $2.20

Explanation:

high low method separates the fixed cost and variable cost using net of Highest activity level and Lowest activity level and net of their relevant costs.

According to High low method

Variable cost per unit = ( Highest activity cost - Lowest activity cost ) / ( Highest Activity - Lowest activity )

Variable cost per unit  = ( $39,390 - $26,410 ) / ( 15,900 - 10,000 )

Variable cost per unit  = $12,980 / 5,900

Variable cost per unit  = $2.2