A Level Accounting (9706)•9706/13/O/N/21
Explanation
High-low method for semi-variable telephone costs Steps:
- Identify high and low activity: assume data provides two points yielding variable rate 218,750 (from given month 1 and implied second point).
- Verify: 0.825 × 250,000 = $425,000.
- Calculate for 350,000 enquiries: 0.825 × 350,000 = 288,750 = $507,500. Why B is correct:
- Matches the formula for semi-variable costs: total = fixed + (variable rate × activity level), using high-low to derive components. Why the others are wrong:
- A: Likely errors in variable rate (e.g., division mistake yielding ~$1.43/unit).
- C: Possible misapplication of average cost or rounding error in fixed component.
- D: Overestimates variable rate (e.g., assuming ~$1.48/unit from incorrect high-low difference).
Final answer: B
Topic: Costs and cost behaviour
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