Question

Records from previous periods show the following relationship between machine hours and maintenance costs:

Machine hours	Maintenance costs
14,750	£27,450
11,300	£26,650
9,500	£23,850
16,900	£33,470

Source: adapted from Chartered Institute of Management Accountants, Paper P1, Performance Evaluation.

Required: using High-Low method

The estimated maintenance costs for 19,500 machine hours are

Answer 1

	Machine-hours	Maintenance Costs
Highest	16,900	£33,470
Lowest	9,500	£23,850
Differnce	7,400	£9,620
Variable cost of sales =		£1.30
(9,620/7,400)
Fixed cost		£11,500
33,470 - (16,900 x 1.30)
Total cost when 19,500 machine-hours		£36,850
(19,500 x 1.30) + 11,500