Question

The controller of Cullumber Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs.
Month Total Maintenance Costs Total Machine Hours
January $2,730 330
February 3,030 380
March 3,630 530
April 4,530 660
May 3,230 530
June 5,450 730
1. Determine the variable cost components using the high-low method.
2. Determine the fixed cost components using the high-low method.

Answer 1

Answer:

1. Variable cost = (Cost at highest activity - Cost at lowest activity) / (Highest activity - Lowest activity)

Variable cost = ($5,450 - $2,730) / (730 - 330)

Variable cost = $2,720 / 400

Variable cost = $6.8

2. Fixed cost = Total cost - Variable cost

Fixed cost = $5,450 - (730*$6.8)

Fixed cost = $5,450 - $4,964

Fixed cost = $486