One of Matthew Corporation's competitors has learned that Matthew has a total expense per unit of $1.50 at the 15,000 unit level of activity and total expense per unit of $1.45 at the 20,000 unit level of activity. Assume that the relevant range includes all of the activity levels mentioned in this problem. What would be the competitor's prediction of variable cost per unit for Matthew Corporation

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facundobuzzetti facundobuzzetti · Answer 1 · 2021-03-21T01:52:40+01:00

Answer:

Variable cost per unit= $1.3

Explanation:

First, we need to calculate the total cost for each activity level:

High activity cost= 20,000*1.45= 29,000

Low activity cost= 1.5*15,000= 22,500

Now, to determine the variable and fixed costs, we can use the high-low method:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (29,000 - 22,500) / (20,000 - 15,000)

Variable cost per unit= $1.3

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 29,000 - (1.3*20,000)

Fixed costs= $3,000

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 22,500 - (1.3*15,000)

Fixed costs= $3,000

The total cost formula is as follow:

Total cost= 3,000 + 1.3x

x= number of units