Question

During the year, the highest and lowest levels of activity for the Cutler Company were 34,000 direct machine hours and 24,000 direct machine hours, respectively. If maintenance costs were $240,000 at the 34,000-hour level and $200,000 at the 24,000-hour level, what cost might we expect at an operating level of 28,000 direct machine hours?

Answer 1

Using High low method
Variable cost per direct machine hour	$ 4.00	=(240000-200000)/(34000-24000)
( Change in cost / change in level of activity)
Fixed Costs	$ 104,000	=240000-(34000*4)
At operating level of 28,000 direct machine hours
Variable Costs ( 28,000 x 4 )	112,000
Fixed Costs	104,000
Total Costs	$ 216,000

At an operating level of 28,000 direct machine hours we might expect cost of $ 216,000.