Question

The controller of Hall Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs. Month Total Maintenance Costs Total Machine Hours January $6,455 5,950 February 7,360 6,800 March 10,140 10,200 April 13,111 13,430 May 8,650 8,500 June 13,340 13,600 Determine the variable-cost components using the high-low method. (Round variable cost to 2 decimal places e.g. 12.25.) Variable cost per machine hour $ Determine the fixed cost components using the high-low method. (Round answer to 0 decimal places e.g. 2,520.) Fixed costs $

Answer 1

Variable cost per machine hour = (Highest activity cost - Lowest activity cost)/(Highest activity machine hour - Lowest activity machine hour)

= (13,340 - 6,455)/(13,600 - 5,950)

= 6,885/7,650

= $0.9 per machine hour

Fixed cost = Highest activity cost - (Variable cost per machine hour x Highest activity machine hour)

= 13,340 - (0.9 x 13,600)

= 13.340 - 12,24-

= $1,100

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