Total costs were $61,000 at 10,000 units and $93,000 at 18,000 units. Fixed costs increase by $8,000 when activity exceeds 15,000 units; the $93,000 includes this step. Using the high-low method, what is the expected total cost at 16,000 units?

Correct answer: C) $87,000

Explanation

Remove the step before applying high-low: $93,000 - $8,000 = $85,000. Variable cost = ($85,000 - $61,000) / (18,000 - 10,000) = $3.00 per unit. Fixed cost below 15,000 units = $61,000 - (10,000 x $3.00) = $31,000. Cost at 16,000 units = $31,000 + $8,000 + (16,000 x $3.00) = $87,000.