Question

Question 2: 8 Marks

The controller of Menno Corp presents you with the following observations in a general ledger account called Maintenance:

Month Machine-hours Maintenance Costs Incurred

January 6,000 $4,000

February 8,000 4,750

March 8,500 4,900

April 9,000 5,000

May 7,000 4,400

June 10,000 5,400

a) Using the high- low method, what is the variable maintenance cost per machine hour at Menno Corp? -

b) Using the high-low method, what is the monthly fixed maintenance cost at Menno Corp? –

c) Using the high-low method, what will the total monthly manufacturing costs be if Menno Corp produces 7,500 units? –

Answer 1

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a.	Variable maintenance cost	=	$               0.35	per machine hour
b.	Fixed maintenance cost	=	$             1,900
c.	Total monthly manufacturing cost at 7500 units	=	$             4,525
	Workings:
			Month	Machine hours	Maintenance Overheads
	High Activity	=	June	10,000	$                                        5,400
	Low Activity	=	January	6,000	$                                        4,000
	Difference	=		4,000	$                                        1,400
a.	Variable cost per unit	=	Difference in total cost / Difference in activity
		=	($1400) / (4000)
		=	$               0.35	per machine hour
b.	Fixed Cost	=	Total cost - (Variable cost per socks X Activity)
		=	5400 - ($.35 X 10000)
		=	$             1,900
	or	=	$4000 - ($.35 X 6000)
		=	$             1,900
c.	Total monthly manufacturing cost at 7500 units	=	Fixed cost + Variable cost
		=	$55,385 + ($46.15 XMachine hours)
		=	$1900 + ($0.35 X 7500)
		=	$             4,525