Question

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.

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