Hi-low method

Please do not simply type out test questions and expect to be provided with an answer. You must have an answer in the same book in which you found the question, so in future ask about whatever it is in the answer that you are not clear about and then I will explain. The difference between 6,000 and 7,500 units is $4.800. Therefore the variable cost per unit is 4,800/1,500 = $3.20 per unit, and the fixed cost is 50,000 - (6,000 x $3.20) = $30,800. However this is the fixed cost for more than 5,500 units, and therefore the fixed cost when less than 5,500 units is 100/110 x $30,800 = $28,000. Therefore the total cost for 5,000 units = (5,000 x $3.20) + $28,000 = $44,000. Or, you can get it even quicker by saying that at 4,000 units the total cost is $40,800. For 5,000 units the fixed cost will be the same and so the only extra cost will be the variable cost of the extra 1,000 units. So the total cost = 40,800 + (1,000 x $3.20) = $44,000.