Questions: Ivanhoe Company accumulates the following data concerning a mixed cost, using miles as the activity level. Miles Driven Total Cost --- --- 7,990 14,120 7,500 13,498 8,500 14,948 8,195 14,485 Compute the unit variable costs using the high-low method for this mixed cost. (Round answer to 2 decimal places, e.g. 2.25.) Variable cost per mile

Ivanhoe Company accumulates the following data concerning a mixed cost, using miles as the activity level.

Miles Driven Total Cost
--- ---
7,990 14,120
7,500 13,498
8,500 14,948
8,195 14,485

Compute the unit variable costs using the high-low method for this mixed cost. (Round answer to 2 decimal places, e.g. 2.25.)

Variable cost per mile

Transcript text: Ivanhoe Company accumulates the following data concerning a mixed cost, using miles as the activity level. Miles Driven | Total Cost --- | --- 7,990 | $14,120 7,500 | $13,498 8,500 | $14,948 8,195 | $14,485 Compute the unit variable costs using the high-low method for this mixed cost. (Round answer to 2 decimal places, e.g. 2.25.) Variable cost per mile $ \square$

Solution

Solution Steps

Step 1: Identify the Highest and Lowest Activity Levels

The highest activity level is 8500 with a total cost of 14948. The lowest activity level is 7500 with a total cost of 13498.

Step 2: Calculate the Change in Total Cost

The change in total cost is calculated as the difference between the highest and lowest total costs: $1450.

Step 3: Calculate the Change in Activity Level

The change in activity level is 1000.

Step 4: Calculate the Variable Cost per Unit of Activity

The variable cost per unit is calculated as the change in total cost divided by the change in activity level: $1.45 per unit.

Step 5: Calculate the Fixed Cost

The fixed cost is calculated by subtracting the product of the variable cost per unit and the activity level at the highest point from the total cost associated with that activity level: $2623.