1. **State the problem:** We need to find the linear relationship between total cost and production (activity level) using the high-low method. 2. **High-low method formula:** The cost function is assumed linear: $$\text{Cost} = \text{Fixed Cost} + (\text{Variable Cost per unit} \times \text{Activity Level})$$ 3. **Identify high and low activity levels:** - Highest activity level = 450 with cost = 270 - Lowest activity level = 150 with cost = 240 4. **Calculate variable cost per unit:** $$\text{Variable Cost per unit} = \frac{\text{Cost at high activity} - \text{Cost at low activity}}{\text{High activity level} - \text{Low activity level}} = \frac{270 - 240}{450 - 150} = \frac{30}{300} = 0.1$$ 5. **Calculate fixed cost:** Using low activity level data: $$240 = \text{Fixed Cost} + 0.1 \times 150$$ $$240 = \text{Fixed Cost} + 15$$ $$\text{Fixed Cost} = 240 - 15 = 225$$ 6. **Write the linear cost function:** $$\text{Cost} = 225 + 0.1 \times \text{Activity Level}$$ This means the fixed cost is 225 (000) and the variable cost per unit of activity is 0.1 (000).