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The busiest month sold 2,900 units at a total cost of $69,800 and the quietest sold 1,100 units at $48,200. Under the high low method, what is the variable cost per unit?
A$32 per unit
B$24 per unit
C$12 per unit
D$18 per unit
Answer & Solution
Correct answer: C. $12 per unit
1. Fixed cost does not move with volume, so the whole gap between the two months is variable cost.
2. Difference in total cost is $69,800 minus $48,200, which is $21,600.
3. Difference in units is 2,900 minus 1,100, which is 1,800 units.
4. $21,600 divided by 1,800 units gives $12 per unit.
5. Dividing a full month's total cost by that month's units gives an average cost near $24, which still carries fixed cost inside it.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 5.1 Introduction_
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