Georgia uses the high-low method of estimating costs. Georgia had total costs of $50,000 at its lowest level of activity, when 5,000 units were sold. When, at its highest level of activity, sales equaled 12,000 units, total costs were $78,000. Georgia would estimate variable cost per unit as

a. $6.50

b. $10.00

c. $4.00

d. $7.53

Variable cost per unit = $4

Explanation:

Giving the following information:

Georgia had total costs of $50,000 at its lowest level of activity when 5,000 units were sold. When, at its highest level of activity, sales equaled 12,000 units, total costs were $78,000.

Using the high-low method, we need to use the following formula to determine the unitary variable cost:

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

Variable cost per unit = (78,000 - 50,000) / (12,000 - 5,000)

Variable cost per unit = $4