High-Low Method for Variable Cost

Steps:

• Identify high and low activity levels: 14,000 units ($53,500) and 8,000 units ($37,000).
• Compute change in total cost: $53,500 -$37,000 = $16,500.
• Compute change in units: 14,000 - 8,000 = 6,000.
• Divide change in cost by change in units: $16,500 / 6,000 =$2.75 per unit.

Why A is correct:

• Variable cost per unit equals the slope of the total cost line, calculated as change in total cost divided by change in units in the high-low method.

Why the others are wrong:

• B: Average total cost at high production ($53,500 / 14,000 ≈$3.82), includes fixed costs.
• C: Weighted average total cost across both levels ($90,500 / 22,000 ≈$4.11), mixes fixed and variable.
• D: Average total cost at low production ($37,000 / 8,000 ≈$4.63), includes fixed costs.

Final answer: A