Brown Company has done a high-low analysis and come up with the following result

Question

Brown Company has done a high-low analysis and come up with the following results: At the highest activity level of 34,000 units, the total cost was $70,000; at the lowest activity level of 24,000 units, the total cost was $56,000. What was the estimated fixed portion of the expense? $32,400 $22,400 $1.40 $21,400 Which of the following is true about contribution margin? It "contributes" to covering the variable costs It is the selling pace less the fixed costs It is the fixed costs less the variable costs It "contributes" to covering the fixed costs

Explanation / Answer

Answer 16.

Variable cost per unit = (Max Cost - Min Cost) / (Max Units - Min Units)

= (70,000 – 56,000) / (34,000 – 24,000)

= 14,000 / 10,000 = $1.4

Total Fixed cost = Max Cost - Variable Cost per units * Max Units

= 70,000 – 34,000 * 1.4

= $22,400

Answer 17. Option d).

Contribution Margin is the difference between the revenue and variable expenses. Contribution Margin contributes to covering Variable cost from Sales.

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