Question

given the following cost and observation for smithson company utilities, use the high-low method to calculate smithsons fixed cost per month. round your final answerr to the nearest dollar. do not round interim calculation. cost january 26100 machine hours 10000..february 37900, machine hours 18200.. march 28500, machine hours 12200,, april 30700, machine hours 15300

Answer 1

Answer- Total Fixed Cost per month =$11710.

Explanation:-

High-Low Method:-

Variable Cost per Unit

Variable cost per unit (b) is calculated using the following formula:

Variable cost per unit = (Y2-Y1)/(X2-X1)

Where,
y2 is the total cost at highest level of activity;
y1 is the total cost at lowest level of activity;
x2 are the number of units/miles/ labor ,machine hours etc. at highest level of activity; and
x1 are the number of units/miles/ labor, machine hours etc. at lowest level of activity

The variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of machine hours).

Total Fixed Cost

Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:

Total Fixed Cost = (y2 – b)*x2 = (y1 – b*x1)

We have,
at highest activity: x₂ = 18200 machine hours; y₂ = $37900
at lowest activity: x₁ = 10000 machine hours; y₁ = $26100

1)-Variable Cost per machine hour = ($37900− $26100) /(18200 hours −10000 hours)  

= $11800/8200 hours

= $1.43902439024 per hour
Total Fixed Cost = $37900 − ($1.43902439024 per hour*18200 hours)

= $37900 – $26190.2439023

=$11710