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		$2,640			3,500
February		3,000			4,000
March		3,600			6,000
April		4,500			7,900
May		3,200			5,000
June		4,620			8,000

Determine the variable-cost components using the high-low method. (Round answer to 2 decimal places e.g. 2.25.)

Variable cost per machine hour

$enter the variable cost per machine hour in dollars rounded to 2 decimal places

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

Fixed costs

$

Answer 1

Ans. 1	Variable cost per machine hour = (Highest cost - Lowest cost) / (Highest machine hours - Lowest machine hours)
	($4,620 - $2,640) / (8,000 - 3,500)
	$1,980 / 4,500
	$0.44 per unit
Ans. 2	We can calculate the fixed maintenance cost by using either highest activity or lowest activity.
	*Calculation of fixed overhead cost using Highest machine hours :
	Fixed maintenance cost = Highest cost - (Highest machine hours * Variable cost per machine hour)
	$4,620 - (8,000 * $0.44)
	$4,620 - $3,520
	$1,100
	*Calculation of fixed overhead cost using Lowest machine hours :
	Fixed maintenance cost = Lowest cost - (Lowest machine hours * Variable cost per machine hour)
	$2,640 - (3,500 * $0.44)
	$2,640 - $1,540
	$1,100
	So, the fixed cost is $1,100.