Eagle Manufacturing has incurred the following machine maintenance costs over the first half of 2018: Month...

Eagle Manufacturing has incurred the following machine maintenance costs over the first half of 2018: Month Machine Hours Cost ($) January 10,000 15,500 February 15,000 16,233 March 12,750 15,985 April 13,268 16,025 May 9,256 11,159 June 10,335 15,117 Required: Using the High – Low method compute: a. The variable cost component of the Maintenance Costs. b. The fixed cost component of the Maintenance Costs. c. The total Maintenance Costs for the month of July, which is projected to use 13,295 machine hours.

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Expert Solution

Note: The variable cost per machine hour is rounded off to 5 decimal places for accuracy, in the absence of specific instructions regarding rounding off. All other amounts are rounded off to the nearest whole dollar. Kindly round off as required since the answers would vary depending on the number of decimal places to which rounded off.

a. The variable cost component of the Maintenance Costs: $0.88336 per machine hour

b. The fixed cost component of the Maintenance Costs: $2983

c. The total Maintenance Costs for July: $14727

Working:

	Machine Hours	Maintenance Costs
High activity level	15000	$16,233
Low activity level	9256	$11,159
Change	5744	$5,074

a. Variable cost per machine hour = $5074/5744 = $0.88336

b. Fixed cost (at high level) = $16233 - (15000 x $0.88336) = $16233 - $13250 = $2983

Fixed cost (at low level) = $11159 - (9256 x $0.88336) = $11159 - $8176 = $2983

c. Maintenance Costs for July = $2983 + (13295 x $0.88336) = $2983 + $11744 = $14727

ekkarill92 answered 1 year ago

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