Question

Data concerning Nelson Company's activity for the first six months of the year appear below: Machine Hours Electrical Cost January 4,000 $3,120 February 6,000 $4,460 March 4,800 $3,500 April 3,800 $3,040 May 3,600 $2,900 June 4,200 $3,200 Using the high-low method of analysis, the estimated monthly fixed component of the electrical cost is: $1,520 $440 $260 $560

Answer 1

Answer:

$560

Explanation:

As we know that the total cost would be a sum of fixed cost and the variable cost

In mathematically,

Total cost = Fixed cost + variable cost

But in the question, the variable cost is not given, so first, we have to find that based on high low method.

So, the variable cost equals to

= Change in total cost ÷ change in machine hours

= ($4,460 - $2,900) ÷ (6,000 -  3,600)

= $1,560 ÷ 2,400

= 0.65

Now the fixed cost equal to

= Total cost - variable cost

= $4,460 - (6,000 × 0.65)

= $4,460 - $3,900

= $560

Answer 2

Based on the total cost and the variable cost, the estimated monthly fixed component of electrical cost according to the high-low method is $560.

What is the estimated monthly fixed component?

The high low method uses the highest costs and activity to calculate the various types of cost.

Estimated fixed component can be found by the formula:

= Total cost - Variable cost element

Variable cost component:
= Difference between highest and lowest cost / Difference between highest and lowest activity

= (4,460 - 2,900) / (6,000 - 3,600)

= 0.65

Estimated monthly fixed component is:

= Highest cost - (Variable cost component x Highest activity)

= 4,460 - (0.65 x 6,000)

= $560

Find out more on the high-low method at https://brainly.com/question/14107176.