Question

Marigold Corp.’s high and low level of activity last year was 57000 units of product produced in May and 11000 units produced in November. Machine maintenance costs were $175600 in May and $46800 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 40000 units.a. $67,500 b. $72,000 c. $58,500 d. $60,000

Answer 1

The answer is: expected maintenance cost $112,000

Step-by-step explanation:

The high-low costing method uses the following formula:

maintenance cost per unit = (highest activity cost - lowest activity cost) / (highest activity units - lowest activity units)

• maintenance cost per unit = ($175,600 - $46,800) / (57,000 units - 11,000 units)
• maintenance cost per unit = $128,800 / 46,000 units = $2.80 per unit

If the company is planning to produce 40,000 units, their total expected maintenance cost should be = 40,000 units x $2.80 per unit = $112,000