Question

The following information is available for a company's maintenance cost over the last seven months.
Month Maintenance Hours Maintenance Cost
June 9 $5,200
July 18 $6,650
August 12 4,850
September 15 5,750
October 21 6,650
November 24 6,950
December 6 3,350
Using the high-low method, estimate both the fixed and variable components of its maintenance cost.
High-Low method Calculation of variable cost per unit
Total cost at the high point ____
Variable costs at the high point
Volume at the high point: ____
Variable cost per unit ____
Total variable costs at the high point ____
Total fixed costs ____
Total cost at the low point ____
Variable costs at the low point
Volume at the low point ____
Variable cost per unit
Total variable costs at the low point
Total fixed costs ____

Answer 1

Answer:

Variable cost per unit= $240

Fixed costs= $1,910

Explanation:

Giving the following information:

June 9 $5,200

July 18 $6,650

August 12 4,850

September 15 5,750

October 21 6,650

November 24 6,950

December 6 3,350

To calculate the variable and fixed costs under the high-low method, we need to use the following formulas:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (6,950 - 3,350) / (21 - 6)

Variable cost per unit= $240

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 6,950 - (240*21)

Fixed costs= $1,910

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 3,350 - (240*6)

Fixed costs= $1,910