Question

Johanson Company has provided the following data for the first five months of the year: Machine...

Johanson Company has provided the following data for the first five months of the year:

Machine Hours Lubrication Cost
January 120 $750
February 160 $800
March 200 $870
April 150 $790
May 170 $840

Using the High Low Method, compute the expected cost at 140 Machine Hours.

Homework Answers

Answer #1

Answer

High-Low Method

As we can see that In January month the Machine hours are least and In March month the Machine hours are maximum.

Machine

Hours

Lubrication Cost

January

     120

750

March

     200

   870

Difference

     80

120

Variable cost = Change in Cost / Change in Hours

= $120 / 80 Hours

Variable cost = $1.5 per hour

Fixed Cost = Total Cost – Variable cost

Let’s take January month example

Fixed Cost = $750 – (120 Hours * $1.5 per hour)

Fixed Cost = $570

Cost of 140 Machine Hours

Total Cost = 570 + (140 Hours * $1.5 per hour)

Total Cost = $780

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