Question

The following costs were for Bikeway Inc., a bicycle manufacturer that uses the high-low method: Output Fixed Costs Variable Costs Total Costs 800 $25,000 $80,000 $105,000 850 $25,000 $85,000 $110,000 900 $25,000 $90,000 $115,000 950 $25,000 $95,000 $120,000 At an output level of 1,000 bicycles, per unit total cost is calculated to be: $101.50. $126.32. $125.00. $100.00. $131.58.

Answer 1

Total cost per unit = $125.00

Step-by-step explanation:

The fixed cost is a cost that remains fixed regardless of the output level in the short run. This means that the fixed cost in the given question will remain fixed at a level of $25000.

The variable cost is a cost that varies, in total, with changes in output level. However, the per unit variable cost usually remains fixed even with changing output level. This assumption holds for the question and the per unit variable cost is,

Variable cost per unit = 80000 / 800 = $100

The total cost at output level of 1000 bicycles will be,

Total cost per unit = 100 + (25000 / 1000)

Total cost per unit = $125.00