Question

Atlanta, Inc., 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:

The variable utilities cost per machine hour is:
A. $0.18.
B. $4.50.
C. $5.00.
D. $5.50.
E. an amount other than those listed above.

Answer 1

The variable utilities cost per machine hour for Atlanta, Inc. is $0.18.

Step-by-step explanation:

The high-low method is a technique used to analyze cost behavior. It involves determining the variable and fixed components of a cost by comparing the costs at the highest and lowest levels of activity. In this case, Atlanta, Inc. has determined that machine hours best explain the company's utilities cost.

Looking at the data provided for the first six months of the year, we can calculate the variable utilities cost per machine hour. The relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours. Using the data, we can calculate the variable utilities cost per machine hour by subtracting the fixed cost from the total cost and dividing it by the difference in machine hours. The variable utilities cost per machine hour is $0.18.