In: Accounting
Glascro Company manufactures skis. The management accountant
wants to calculate the fixed and variable costs associated with the
leasing of machinery. Data for the past four months were collected
as follows:
Month | Lease cost | Machine hours |
April | $15,000 | 800 |
May | 10,000 | 600 |
June | 12,000 | 770 |
July | 16,000 | 1,000 |
Using the high-low method, calculate the fixed cost of leasing.
a.$1,500
b.$2,500
c.$1,000
d.$2,000
Correct answer----------(c) $1,000
Working
Cost | No. of activities | ||
A | High Level | $ 16,000.00 | 1000 |
B | Low Level | $ 10,000.00 | 600 |
C=A-B | Difference | $ 6,000.00 | $ 400.00 |
A | Cost difference | $ 6,000.00 | |
B | No. of activities difference | 400 | |
C=A/B | Variable cost per unit | $ 15.000 | |
High Level | Low Level | ||
A | No. of activities | 1000 | 600 |
B | Variable cost per unit | $ 15.0000 | $ 15.0000 |
C=AxB | Total Variable cost | $ 15,000.00 | $ 9,000.00 |
D | Total cost | $ 16,000.00 | $ 10,000.00 |
E=D-C | Total fixed cost | $ 1,000.00 | $ 1,000.00 |