Question

he controller of Blossom Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs.

Month		Total Maintenance Costs			Total Machine Hours
January		$2,912			3,860
February		3,309			4,412
March		3,971			6,618
April		4,963			8,714
May		3,530			5,515
June		5,894			8,830

Determine the variable-cost components using the high-low method.

Determine the fixed cost components using the high-low method.

Answer 1

High Low Method
a.)	Variable cost per unit	0.60
b.)	Total fixed cost	596
		Total Maintenance Costs	Total Machine Hours
	High Level	5894	8830
	Low Level	2912	3860
	Change	2982	4970
a.	Change per unit (Variable cost) = Change in total mainatenance cost / Change in machine hours
				=(2982/4970)
				0.60
b.	Fixed Cost calculation for january cost	Fixed Cost calculation for june cost
	Variable Cost + Fixed cost = Total cost	Variable Cost + Fixed cost = Total cost
	0.60 * 8830 + Fixed Cost = 5894	0.60 * 3860 + Fixed Cost = 2912
	Fixed Cost = $ 596		Fixed Cost = $ 596
	so, variable cost is equal to 0.60 per activity while fixed cost is $ 596 within the relevant range.