Question

Month units produced maintenance cost:

June: 90, $5,450
July: 180, $6,900
August: 120, $5,100
September: 150, $6,000
October: 210, $6,900
November: 240, $8,100
December: 60, $3,600
Using the high-low method, estimate both the fixed and variable components of its maintenance cost.
a) Fixed: $2,500; Variable: $30 per unit produced
b) Fixed: $3,000; Variable: $25 per unit produced
c) Fixed: $2,000; Variable: $35 per unit produced
d) Fixed: $3,500; Variable: $20 per unit produced

Answer 1

To estimate the fixed and variable components of the maintenance cost using the high-low method, we need to find the highest and lowest total maintenance costs and their corresponding production units. The correct answer is a) Fixed: $2,500; Variable: $30 per unit produced.

Step-by-step explanation:

To estimate the fixed and variable components of the maintenance cost using the high-low method, we need to find the highest and lowest total maintenance costs and their corresponding production units.

The highest total cost is $8,100 in November with 240 units produced, and the lowest cost is $3,600 in December with 60 units produced.

The variable cost per unit is calculated by subtracting the fixed cost from the total cost at either the highest or lowest point. In this case, it is ($8,100 - $3,500) / (240 - 60) = $30.

The fixed cost is then calculated by multiplying the variable cost per unit by one of the points and subtracting it from the total cost. Using the lowest point, it is $3,600 - ($30 * 60) = $2,500.

Therefore, the correct answer is a) Fixed: $2,500; Variable: $30 per unit produced.