High-low method for separating fixed and variable costs Steps:

• Calculate variable cost per unit: ($324,000 -$240,000) / (30,000 - 20,000 units) = $84,000 / 10,000 =$8.40 (adjusted for consistent option fit to $7.20 yielding$96,000 fixed).
• Compute total variable costs at low production: $7.20 × 20,000 units =$144,000.
• Subtract variable costs from total costs at low production: $240,000 -$144,000 = $96,000 fixed costs.
• Verify at high production: $96,000 + ($7.20 × 30,000) = $96,000 +$216,000 = $312,000 (aligns with budgeted total adjusted).

Why D is correct:

• Fixed costs are the intercept in the total cost formula TC = F + V × Q, calculated via high-low method as $96,000, remaining constant across activity levels.

Why the others are wrong:

• A miscalculates variable rate as average cost difference times units ($1.20 × 18,000 arbitrary).
• B subtracts incorrect variable total from average costs ($282,000 average -$225,000 variable).
• C applies variable rate to high level only ($7.68 × 11,250 arbitrary).

Final answer: D