Question

The accountant of ABC Company has the following maintenance costs and working hours for the past five months and trying to separate the cost to its components:

Month	Cost	Working hours
March	$100,000	5,000
April	60,000	1,000
May	68,600	2,000
June	83,450	3,420
July	88,000	5,250

what is the variable cost per hour?

[[selectone]]

a. $16 per hour

b. $14 per hour

c. $10 per hour

d. $12 per hour

Answer 1

This question is related to High-low method. Under this method the variable cost per unit is estimated by dividing the difference of cost at highest and lowest level of activity by the difference in highest and lowest level of activity.

Cost at highest activity level = $100,000 (March)

Cost at lowest activity level = $60,000 (April)

Variable Cost per Hour = Difference in Cost at Highest and Lowest Activity Level / Difference of highest and lowest activity level

= ($100,000 – 60,000) / (5,000 – 1,000 working hours)

= $40,000 / 4,000 hours

= $10 per hour

Hence, the correct option is c. $10 per hour