Question

The controller of Hall 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 $9,500 5,250 February 10,840 6,000 March 15,360 9,000 April 19,984 11,850 May 13,000 7,500 June 20,300 12,000.

1. Determine the variable-cost components using the high-low method. (Round variable cost to 2 decimal places e.g. 12.25.) Variable cost per machine hour=

2. Determine the fixed cost components using the high-low method. (Round answer to 0 decimal places e.g. 2,520.) Fixed cost=

Answer 1

Answer:

1)

Variable cost per unit     = (Highest Cost (-) lowest Cost) / ( Highest Hours (-) lowest Hours)     =    ( $ 20,300 (-) $ 9,500 ) / ( 12,000 (-) 5,250)     =    $ 10,800 / 6,750 MH     =    $ 1.60 Per unit

Variable cost per unit   =    $ 1.60 Per unit

2)

Fixed cost =   Highest Cost (-) ( Highest Machine Hrs. x Variable cost per unit   )                        = $ 20,300 (-) ( 12,000 x $ 1.60)                        = $ 20,300 (-) $ 19,200                        =    $ 1,100

Fixed cost =    $ 1,100