Question

A soft drink bottler incurred the following factory utility cost: $3,686 for 1,300 cases bottled and $3,766 for 1,900 cases bottled. Factory utility cost is a mixed cost containing both fixed and variable components. The variable factory utility cost per case bottled is closest to:

Answer 1

Answer:

The variable factory utility cost per case bottled is closest to $0.13

Explanation:

High low method separates the fixed cost and variable cost using net of Highest activity level and Lowest activity level and net of their relevant costs.

According to High low method

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

Variable cost per unit  = ( $3,766 - $3,686 ) / ( 1,900 cases - 1,300 cases )

Variable cost per unit  = $80 / 600 cases

Variable cost per unit  = $0.13333333333

Variable cost per unit  = $0.13 ( rounded off to 2 decimal places )