Question

Meadow uses the high-low method. It had total costs of $500,000 at its lowest level of activity when 5,000 units were sold. When, at its highest level of activity, sales equaled 12,000 units, total costs were $780,000. Meadow would estimate fixed costs as:

Answer 1

The fixed cost is $300,000

Step-by-step explanation:

The computation of the fixed cost is shown below:

But before that first determine the variable cost per unit

= ($780,000 - $500,000) ÷ (12,000 units - 5,000 units)

= $40 unit

Now the fixed cost is

= $780,000 - $40 × 12,000 units

= $780,000 - $480,000

= $300,000

hence, the fixed cost is $300,000