The high-low method is used to estimate fixed and variable costs. Here's the step-by-step process:
Step 1: Identify the highest and lowest activity levels.
High activity: September — 700 units; cost = $3,500
Low activity: November — 450 units; cost = $3,000
Step 2: Calculate variable cost per unit:
Variable Cost per Unit = (Cost at High – Cost at Low) / (Units High – Units Low)
= ($3,500 – $3,000) / (700 – 450)
= $500 / 250 = $2.00 per unit
Step 3: Calculate fixed cost using high point:
Fixed Cost = Total Cost – (Variable Cost × Units Produced)
= $3,500 – ($2.00 × 700)
= $3,500 – $1,400 = $2,100
Step 4: Estimate cost for 600 units:
Estimated Cost = Fixed Cost + (Variable Cost × Units)
= $2,100 + ($2.00 × 600) = $2,100 + $1,200 = $3,300
Correct answer should be: B ($3,300)
However, the question options do not align with this logic at first glance, and answer A is listed as $3,250, which would require rechecking.
Wait — our calculation shows the correct total cost for 600 units is:
→ $2,100 + (600 × $2.00) = $3,300
Correct Answer: B
Final Answer: B. $3,300
[Reference:Saylor Academy, BUS105: Managerial AccountingUnit 1.3 – Cost Classifications for Predicting Cost Behaviorhttps://learn.saylor.org/mod/book/view.php?id=28815&chapterid=6691, —, ]