Question

The following information is available for a company’s maintenance cost over the last seven months.

Month Maintenance Hours Maintenance Cost
June 11 $ 5,050
July 17 6,850
August 13 5,650
September 16 6,550
October 22 8,350
November 25 9,250
December 7 3,850
Using the high-low method, estimate both the fixed and variable components of its maintenance cost.

Answer 1

Variable cost per unit= $300

Fixed cost= $1,750

Step-by-step explanation:

Giving the following information:

Month Maintenance Hours Maintenance Cost

June 11 $ 5,050

July 17 6,850

August 13 5,650

September 16 6,550

October 22 8,350

November 25 9,250

December 7 3,850

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

VCunit= (9250 - 3850) / (25 - 7)= 300 per hour

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

Fixed costs= 9250 - (300 * 25)= 1750

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

Fixed costs= 3850 - (300*7)= 1750