Question

The following information is available for a company's utility cost for operating its machines over the last four months.

Month Machine hours Utility cost
January 1,050 $6,600
February 1,950 $7,200
March 2,700 $8,100
April 750 $4,530

Using the high-low method, the estimated variable cost per unit for utilities is:

a. $1.500
b. $3.600
c. $6.000
d. $3,300
e. $2,100

Answer 1

Answer:

$1.83 per unit

Explanation:

The company uses high-low method to calculate utility costs. This is one of the methods to estimate cost. This method analyzes high level of activity and low level of activity and then compares it with cost at each level of activity. The variable cost per unit for utilities will be calculated by the formula given below,  

The variable cost per unit for utilities = (High Cost - Low cost) / (High units - Low units)  

= $8,100 - $4,530 / 2,700 - 750

= $1.83 per unit.