Question

Rosbell Industries accountant collected the following monthly expenses data for use in analyzing the cost behaviors of the maintenance cost of the new machine.

Month	Total   MaintenanceCosts	Total     MachineHours
January	$1,584	2,100
February	$1,800	2,400
March	$2,160	3,600
April	$2,772	4,800
May	$1,920	3,000
June	$2,700	4,740

1. Determine the fixed and variable cost components using the high-low method.  
2. Determine the expected Maintenance Cost for the month of July if the company expect to use the machine for 4,900 hours.

Answer 1

Variable cost per hour using High -Low Method
Variable cost of maintenance per hour =	Difference in High-low hours Maintenance Costs
Difference in High-low Hours
	=	2,772-1,584
	4,800-2,100
	=	0.44 per hour
Fixed maintenance cost
By using above variable cost per hour in either January or April expense
Fixed expense    =	Total expense - (Hours * variable cost per hour)
=	1,584- (2100*0.44)
=	$660
Expected maintenance cost for the month of July for 4900 machine hours
= $660 + (4900*0.44)
= $2,816