Final answer:
Using the high-low method, the Campbell and Campbell Company's utility costs include a variable cost of $0.075 per unit and a fixed cost of $450. This is calculated by determining the variable rate per unit between the high and low activity levels and then finding the fixed cost by subtracting the total variable cost at the high level from the total cost at that level.
Step-by-step explanation:
To determine the fixed and variable components of Campbell and Campbell Company's utility costs using the high-low method, we first need to calculate the variable cost rate per unit. We do this by taking the difference in cost between the high and low months, and dividing it by the difference in production units for those same months.
Let's calculate:
- Variable cost rate = (Total cost at high activity level - Total cost at low activity level) / (High activity units - Low activity units)
- Variable cost rate = ($1,200 - $600) / (10,000 units - 2,000 units)
- Variable cost rate = $600 / 8,000 units
- Variable cost rate = $0.075 per unit
Now, to find the fixed cost, we subtract the total variable cost at either the high or low level from the total cost at that level:
- Fixed cost = Total cost at high activity level - (Variable cost rate × High activity units)
- Fixed cost = $1,200 - ($0.075 × 10,000 units)
- Fixed cost = $1,200 - $750
- Fixed cost = $450
Therefore, the utility costs consist of a $0.075 variable cost per unit and a $450 fixed cost, which corresponds to answer choice a.