Question

Glascro Company manufactures skis. The management accountant wants to calculate the fixed and variable costs associated with the leasing of machinery. Data for the past four months were collected as follows: Month Lease cost Machine hours April $15,000 800 May 10,000 600 June 12,000 770 July 16,000 1,000 Using the high-low method, calculate the fixed cost of leasing. (A) $1,500 (B) $2,500 (C) $1,000 (D) $2,000

Answer 1

$1,000

Step-by-step explanation:

We know that

Total cost = Fixed cost + Variable cost

From the data given, we can calculate the variable cost using the high-low technique.

Variable cost per unit

=
`(Total cost at highest level-Total cost at lowest level )/(Highest level - Lowest level) \\\\=(16,000-10,000)/(1,000-600 ) \\`

=$15

Lease cost = FC + $15(Machine hours)

Lease cost -$15(Machine hours) = FC

Case,

i) 800 machine hours,

FC = Lease cost - $15(Machine hours)

= $16,000 -$15(1000) = $1,000