Swifty Corporation’s high and low level of activity last year was 66000 units of product produced...

Swifty Corporation’s high and low level of activity last year was 66000 units of product produced in May and 26000 units produced in November. Machine maintenance costs were $239400 in May and $103400 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 49000 units.

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Expert Solution

High Low Method

Under High-low method, the variable cost per unit is estimated by dividing the difference of cost at highest and lowest level of activity by the difference in highest and lowest level of activity.

Variable Cost per Unit = Difference in Cost at Highest and Lowest Activity Level / Difference of highest and lowest activity level

= ($239,400 – 103,400) / (66,000 – 26,000)

= $136,000 / 40,000 Units

= $3.40 per unit

Fixed Cost can be calculated by putting variable cost per unit at highest or lowest activity.

Total Cost at highest level of activity = Total variable cost + total fixed cost = $239,400

Total Variable Cost (66,000 Units * $3.40) + Fixed Cost = $239,400

$224,400 + Fixed Cost = $239,400

Fixed Cost = $239,400 – 224,400 = $15,000

Total maintenance cost for a month in which production is expected to be 49000 units.

Total Maintenance Cost = Fixed Cost $15,000 + Variable Cost (49,000 Units * $3.40)

= $15,000 + $166,600

= $181,600

Hope the above calculations, working and explanations are clear to you and help you to understand the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

ekkarill92 answered 1 year ago

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