Question

The controller of Crane Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs. Month Total Maintenance Costs Total Machine Hours January $2,590 330 February 2,890 380 March 3,490 530 April 4,390 660 May 3,090 530 June 4,790 730 (a1) Determine the variable cost components using the high-low method. (Round answer to 2 decimal places e.g. 2.25.) Variable cost per machine hour $enter the variable cost components using the high-low method rounded to 2 decimal places eTextbook and Media (a2) Determine the fixed cost components using the high-low method. Total fixed costs $enter the fixed cost components using the high-low method

Answer 1

Solution-

	Total Maintenance Costs	Total Machine Hours
January	$2590	330
February	$2890	380
March	$3490	530
April	$4390	660
May	$3090	530
June	$4790	730

a1) Computation of Variable cost per machine hour using the high-low method -

= [(Cost of high activity - Cost of low activity) / (Highest activity - Lowest activity)]

= [(4790 - 2590) / (730 - 330)]

= [2200 / 400]

= 5.5

Ans :-

Variable cost per machine hour

$5.5

a2) Computation of Fixed cost-

Distribution of Jnauary Cost (Lowest) = [Total Cost - Variable Cost]

= [2590 - (330 * 5.5)]

= [2590 - 1815]

= 775

Distribution of June Cost (Highest) = [Total Cost - Variable Cost]

= [4790 - (730 * 5.5)]

= [4790 - 4015]

= 775

Ans :-

Total fixed costs

$775