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Felinas Inc. produces floor mats for cars and trucks. The owner, Kenneth Felinas, asked you to assist him in estimating his maintenance costs. Together, Mr. Felinas and you determined that the single best cost driver for maintenance costs was machine hours. Below are data from the previous fiscal year for maintenance expense and machine hours:Month Maintenance Expense Machine Hours1 $ 3,460 2,370 2 3,650 2,470 3 3,830 2,570 4 3,960 2,600 5 3,960 2,450 6 4,360 2,500 7 3,950 2,590 8 3,760 2,560 9 3,480 2,380 10 3,100 2,250 11 2,950 1,660 12 3,220 2,240 Using the high-low method, total monthly fixed cost is calculated to be:Multiple Choice$296.$224.$460.$162.$552.

User DEHAAS
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2 Answers

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Final answer:

Using the high-low method with the given data, the total monthly fixed cost for Felinas Inc.'s maintenance is approximately $163.50 (rounded to $164). The answer would be $162 according to the closest option available.

Step-by-step explanation:

To estimate the total monthly fixed cost using the high-low method, we first need to identify the months with the highest and lowest activity levels. Looking at the data provided, the highest activity level is in month 6 with 2,500 machine hours, and the lowest is in month 11 with 1,660 machine hours. We will use the maintenance expenses and machine hours from these months to calculate the variable cost per machine hour and then the total fixed cost.

The variable cost per machine hour is calculated by taking the difference in maintenance expense and dividing it by the difference in machine hours.

Variable Cost per Machine Hour = (Expense at High Activity Level - Expense at Low Activity Level) / (Machine Hours at High Activity Level - Machine Hours at Low Activity Level)

For the months identified:

Variable Cost per Machine Hour = ($4,360 - $2,950) / (2,500 - 1,660)

Variable Cost per Machine Hour = $1,410 / 840

Variable Cost per Machine Hour = $1.6786 per hour

With the variable cost per hour determined, we can now calculate the total fixed cost.

Total Fixed Cost = Total Expense - (Variable Cost per Machine Hour * Machine Hours)

For the highest activity level month:

Total Fixed Cost = $4,360 - ($1.6786 * 2,500)

Total Fixed Cost = $4,360 - $4,196.50

Total Fixed Cost = $163.50

Therefore, based on the data provided and using the high-low method, the total monthly fixed cost for maintenance is approximately $163.50, which when rounded to the nearest dollar is $164. So, the correct answer is $162 if we go by the closest option provided.

User GeekYouUp
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2 votes

Answer:

D. $162

Step-by-step explanation:

We know,

Using high-low method, variable cost per unit = (Highest maintenance expense - Lowest maintenance expense) / (Highest machine hours - Lowest machine hours)

Given,

Highest maintenance expense = $4,360

Lowest maintenance expense = $2,950

Highest machine hours = 2,500 hours

Lowest machine hours = 1,660 hours

Therefore,

Variable cost per unit = $(4360 - 2950)/(2500 - 1660)

Variable cost per unit = 1410/840 = 1.68

Total Fixed cost using lowest machine hours =

Total cost - (variable cost per unit x least machine hours)

= 2,950 - (1.68*1,660)

= $162

User DavidGSola
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