Question

Barkoff Enterprises, which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:Month - Utilities($) - Machine HoursJanuary - 8,700 - 800February - 8,360 - 720March - 8,950 - 810April - 9.360 - 920May - 9.625 - 950June - 9,150 - 900 The fixed utilities cost per month for Barkoff is: A) $4,400. B) $5,1 00. C) $4,760. D) $3,764. E) None of the answers is correct.

Answer 1

The fixed utilities cost per month for Barkoff Enterprises is $3,575.

Step-by-step explanation:

To determine the fixed utilities cost per month for Barkoff Enterprises, we need to use the high-low method. The high-low method uses the highest and lowest activity levels to calculate the variable cost per unit of activity, and then uses this information to find the fixed cost component.

First, we need to determine the variable cost per machine hour. The difference in utilities cost between the highest and lowest activity levels is $9,625 - $8,360 = $1,265. The difference in machine hours is 950 - 720 = 230. Therefore, the variable cost per machine hour is $1,265 / 230 = $5.50.

Next, we can use the variable cost per machine hour and one set of data (either the lowest or highest activity level) to find the fixed cost component. Let's use the highest activity level data: $9,625 = Fixed cost + (Machine hours ×Variable cost per machine hour).

Plugging in the values: $9,625 = Fixed cost + (1,100 ×$5.50).

Solving for Fixed cost: Fixed cost = $9,625 - ($6,050) = $3,575.

The fixed utilities cost per month for Barkoff Enterprises is $3,575.

Answer 2

See below.

Step-by-step explanation:

Lets first calculate variable cost per unit using the highest and lowest activities,

Highest Activity 950 hours $9625 cost in month of May

Lowest activity 720 hours $8360 cost in month of February

Variable cost / unit

= (High activity cost - low activity cost) / (High activity hours - low activity hours)

Variable cost = (9625 - 8360) / (950-720)

Variable cost = $5.5/hour

We can compute the fixed element by multiplying variable cost by hours and subtracting from total cost corresponding to that activity level.

Fixed cost = 8360 - (5.5*720) = $4,400

Hope that helps.