Question

During the year, the highest and lowest levels of activity for the Cutler Company were 34,000...

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?

Homework Answers

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.
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