Question

Colombia Company has provided the following data for maintenance cost:

	Prior Year	Current Year
Machine hours	18,000	20,300
Maintenance cost	$34,700	$37,460

Maintenance cost is a mixed cost with variable and fixed components. The fixed and variable components of maintenance cost are closest to:

rev: 12_20_2016_QC_CS-72978

$13,100 per year plus $.833 per machine hour

$24,360 per year plus $.833 per machine hour

$13,100 per year plus $1.20 per machine hour

$34,700 per year plus $1.20 per machine hour

Answer 1

We will use high low method to determine fixed and variable cost.

Variable cost per unit = (37460 - 34700)/ (20300 – 18000)

                                        = 2760/ 2300

                                          = $1.2 per unit

Current year variable cost = 20300 * 1.2 = 24360

Fixed cost = 37460 – 24360 = 13100

So the correct option is C.