Question

The following information is available for a company’s maintenance cost over the last seven months.

Month	Maintenance Hours			Maintenance Cost
June		9		$	3,950
July		18			5,750
August		12			4,550
September		15			5,150
October		21			6,350
November		24			6,950
December		6			3,350

Using the high-low method, estimate both the fixed and variable components of its maintenance cost.

High- Low method calculation of variable cost per maintenance hour

__________________ ____________________ ____________ _______________ __________0

_________________ ____________________ _______________

Total cost at the high point $_____________________

Variable costs at the high point:   

Volume at the high point: ________________________

Variable cost per maintenance hour ____________________

Total variable costs at the high point __________________________

Total fixed costs ________________________

Total cost at the low point _________________

Variable costs at the low point: _________________

Volume at the low point: _______________

Variable cost per maintenance hour ____________

Total variable costs at the low point

Total fixed costs

Answer 1

Variable cost per maintenance hour = (Total cost at high point-Total cost at low point)/(Volume at high point-Volume at low point) =
= (6950-3350)/(24-6) =	$ 200
Fixed cost = 6950-200*24 =	$             2,150
Maintenance cost equation:
Y = $2150+$200*X, where X = number of maintenance hours
Total cost at the high point	$             6,950
Variable costs at the high point:
Volume at the high point	24
Variable cost per maintenance hour	$ 200
Total variable costs at the high point	$             4,800
Total fixed costs	$             2,150
Total cost at the low point	$             3,350
Variable costs at the low point:
Volume at the low point	6
Variable cost per maintenance hour	$ 200
Total variable costs at the low point	$             1,200
Total fixed costs	$             2,150