Question

Using the high-low method, what is the estimated variable cost per unit?

1) Cannot be determined
2) The highest cost per unit
3) The lowest cost per unit
4) The average of the highest and lowest costs per unit

Answer 1

The estimated variable cost per unit using the high-low method is determined by calculating the difference in total costs between the highest and lowest levels of activity and dividing by the difference in units produced, not by the provided options.

Step-by-step explanation:

When applying the high-low method to estimate variable costs, we compare the highest and lowest levels of activity and the total costs at those levels. The estimated variable cost per unit is not simply the highest or lowest cost per unit nor the average of these two values. Instead, we calculate the difference in total costs between the high and low levels and divide that by the difference in the number of units produced at these levels. The result is the variable cost per unit.

The steps involved in this method are as follows:

1. Identify the periods with the highest and lowest levels of activity (e.g., units produced).
2. Calculate the difference in total costs between those periods.
3. Divide the difference in total costs by the difference in activity levels to find the variable cost per unit.

Therefore, the answer to the question is none of the provided options directly. The estimated variable cost per unit is determined through the calculation outlined rather than being inherently the highest or lowest cost per unit or their average.