7. ABC Company finds that its utility costs increase as its production goes up,

Question

7. ABC Company finds that its utility costs increase as its production goes up, but the costs also include a baseline amount that doesn't vary with production. The following information is gathered Month January February March April May June Production UnitsUtility Costs 390 301 500 490 470 240 $4,578 $4,352 $4,936 $5,098 $4,611 $4,048 Using the High-low method and the information above, what is the variable cost of utilities per production unit being used in the factory, rounded to the nearest penny? A. $4.35 B. $10.36 C. $11.59 D. $12.47

Explanation / Answer

Month Production units Utility costs January 390                  4,578.00 february 301                  4,352.00 March 500                  4,936.00 april 490                  5,098.00 may 470                  4,611.00 june 240                  4,048.00 Using the High low method,take the highest and lowest production units from the above table. that is 500 and 240 units in the month of March and june respectively Variable cost=(Total cost of high production units-total cost of low production units)/(high prduction unit-low production unit) (4936-4048)/(500-240) $ 3.42 As per the concept ,answer is $3.42 which is not available in the options.

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