Question

The following information is available for a company’s maintenance cost over the last twelve months:

Month	Maintenance Hours	Maintenance Cost
January	43	$43,820
February	38	$45,010
March	35	$44,000
April	31	$45,000
May	36	$43,200
June	28	$38,760
July	18	$32,300
August	19	$35,440
September	25	$37,500
October	29	$39,560
November	34	$42,100
December	39	$46,700

Based on the high-low method, what is the variable and fixed cost component of total maintenance cost?

Variable cost per unit: $

Fixed cost: $

Answer 1

Solution:

High low Method

1.) Variable cost per unit

= [Maintenance cost at highest hour - maintenance cost at lowest hour] / [number of highest hours - number of lowest hours]

= ($ 43,820-$ 32,300) / (43-18)

=$ 11,520 / 25

= $ 460.8

2.Fixed cost

Total Maintenance cost at 43 maintenance hours = $43,820

Less: Variable cost (43 X $ 460.8) =$ 19814

Total fixed cost = $ 24,006

Or

Total maintenance cost at 18 hours =$ 32,300

Less: Variable cost ( 18 X $ 460.8) = $ 8,294

Total fixed cost = $ 24,006