High-low method identifies fixed costs from two activity levels

Steps:

• Determine variable cost per unit: ($780,000 -$600,000) / (120,000 - 90,000 units) = $180,000 / 30,000 =$6 per unit.
• Calculate fixed costs excluding rental using low activity level: $600,000 - (90,000 units ×$6) = $600,000 -$540,000 = $60,000.
• Compute machinery rental: 120,000 units / 60,000 capacity per machine = 2 machines × $12,000 =$24,000 (fixed).
• Add components for total fixed cost: $60,000 +$24,000 = $84,000.

Why B is correct:

• High-low method formula separates fixed costs as total cost at low level minus (low units × variable cost per unit), plus step-fixed rental based on capacity needs.

Why the others are wrong:

• A ignores rental cost addition to non-rental fixed component.
• C misapplies variable rate without capacity-based rental calculation.
• D overestimates machines needed or variable cost separation.

Final answer: B