Oerther Corporation reports that at an activity level of 5,000 units, its total variable cost is $131,750 and its total fixed cost is $31,200.What would be the total variable cost at an activity level of 5,200 units? Assume that this level of activity is within the relevant range. (Round intermediate calculations to 2 decimal places.)

A) $137,020
B) $131,750
C) $162,950
D) $32,448

Question

Wendi Swallers · Accepted Answer

Final Answer : A, Explanation :  Using the high-low method, we can calculate the variable cost per unit:Variable cost per unit = (total variable cost at high activity level - total variable cost at low activity level) / (high activity level - low activity level)Variable cost per unit = ($131,750 - $31,200) / (5,000 - 0)Variable cost per unit = $20.11Then, we can calculate the total variable cost at an activity level of 5,200 units:Total variable cost = variable cost per unit x activity levelTotal variable cost = $20.11 x 5,200Total variable cost = $104,572Therefore, the best choice is A, $137,020 is the correct answer which is calculated by adding the total variable cost at an activity level of 5,200 units ($104,572) to the total fixed cost ($31,200):Total cost = total variable cost + total fixed costTotal cost = $104,572 + $31,200Total cost = $137,020

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