Cost Behaviour Patterns – Short Answer

Practice Question

Intro to Managerial Accounting
Managerial Cost Concepts & Cost Behaviour Analysis
Cost Behaviour Patterns
Short Answer

A company uses the high-low method to determine variable and fixed costs. The highest activity level resulted in costs of $10,000 for 2,000 units; the lowest level resulted in costs of $6,000 for 1,000 units. What is the variable cost per unit?

Answer +
Correct Answer: $4.00
Explanation +

Step 1: Identify Key Variables – High Cost = $10,000 at 2,000 units, Low Cost = $6,000 at 1,000 units.

Step 2: Variable Cost per Unit = (High Cost − Low Cost) ÷ (High Units − Low Units)

Step 3: Variable Cost per Unit = ($10,000 − $6,000) ÷ (2,000 − 1,000) = $4 per unit

Conclusion: The variable cost per unit is $4.00.