High-Low Method for Fixed Costs Plus Rentals

Steps:

• Calculate variable cost per unit: ($680,000 -$525,000) / (120,000 - 90,000) = $155,000 / 30,000 =$5.17 per unit (assuming $525,000 for 90,000 units based on consistent data).
• Compute fixed costs excluding rental using low activity: $525,000 - ($5.17 × 90,000) = $525,000 -$465,000 = $60,000.
• Determine machines needed: ceil(90,000 / 60,000) = 2 machines (same for 120,000 units); rental = 2 × $12,000 =$24,000.
• Total fixed cost = $60,000 +$24,000 = $84,000.

Why B is correct:

• High-low method isolates the fixed portion ($60,000) from variable costs in the given data, and adding step-fixed rental costs for required capacity yields$84,000 total fixed costs.

Why the others are wrong:

• A: Underestimates fixed excluding rental by ignoring high-low separation.
• C: Overstates by treating all excluding costs as fixed without variable adjustment.
• D: Includes excess machines or misapplies capacity ceiling.

Final answer: B