Question
In: Accounting
A company has the following financial information: year Labour (in hours) machine costs (in $) 2009...
A company has the following financial information:
|
year |
Labour (in hours) |
machine costs (in $) |
|
2009 |
1,200 |
103,266 |
|
2010 |
1,225 |
110,216 |
|
2011 |
1,100 |
97,579 |
|
2012 |
1,050 |
94,581 |
|
2013 |
1,160 |
111,762 |
|
2014 |
1,200 |
115,786 |
|
2015 |
1,350 |
136,476 |
|
2016 |
1,380 |
141,852 |
|
2017 |
1,250 |
128,679 |
|
2018 |
1,270 |
135,334 |
|
2019 |
1,220 |
132,222 |
Required
Using the high-low method, what are the estimated machine costs
- if there are 1,100 Labour hours?
- if there are zero Labour hours?
- What is a significant drawback to using the High-low method to calculate costs at zero labour hours?
Solutions
Expert Solution
a
| Month | Hours | Cost |
| 2009 | 1,200 | $ 103,266 |
| 2010 | 1,225 | $ 110,216 |
| 2011 | 1,100 | $ 97,579 |
| 2012 | 1,050 | $ 94,581 |
| 2013 | 1,160 | $ 111,762 |
| 2014 | 1,200 | $ 115,786 |
| 2015 | 1,350 | $ 136,476 |
| 2016 | 1,380 | $ 141,852 |
| 2017 | 1,250 | $ 128,679 |
| 2018 | 1,270 | $ 135,334 |
| 2019 | 1,220 | $ 132,222 |
| High | 1,380 | $ 141,852 |
| Low | 1,050 | $ 94,581 |
| Variable cost | 143.25 | |
| = (141852-94581)/(1380-1050) | ||
| Fixed cost | (55,826.73) | |
| = 141852-1380 × 143.25 | ||
| Equation= | Cost = 143.2455 × Hours + -55826.73 | |
| Cost at 1100 hours: | $ 101,743.27 | |
| [ 1100 * 143.2455 + -55826.73 |
b
| Month | Hours | Cost | |
| 2009 | 1,200 | $ 103,266 | |
| 2010 | 1,225 | $ 110,216 | |
| 2011 | 1,100 | $ 97,579 | |
| 2012 | 1,050 | $ 94,581 | |
| 2013 | 1,160 | $ 111,762 | |
| 2014 | 1,200 | $ 115,786 | |
| 2015 | 1,350 | $ 136,476 | |
| 2016 | 1,380 | $ 141,852 | |
| 2017 | 1,250 | $ 128,679 | |
| 2018 | 1,270 | $ 135,334 | |
| 2019 | 1,220 | $ 132,222 | |
| High | 1,380 | $ 141,852 | |
| Low | 1,050 | $ 94,581 | |
| Variable cost | 143.25 | ||
| = (141852-94581)/(1380-1050) | |||
| Fixed cost | (55,826.73) | ||
| = 141852-1380 × 143.25 | |||
| Equation= | Cost = 143.2455 × Hours + -55826.73 | ||
| Cost at 0 hours: | $ (55,826.73) | ||
| [ 0 * 143.2455 + -55826.73 |
c
Cost can not be negative. At 0 hours it is providing negative cost which is a drawback of the method.
please rate.
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