Question

Deidoro company has provided the following data for maintenance cost: prior year current year machine hours 19,200 22,200 maintenance cost 32,100 36,300 maintenance cost is a mixed cost with variable and fixed components. the fixed and variable components of maintenance cost are closest to

Answer 1

Using the high-low method, the variable maintenance cost has been calculated at $1.40 per machine hour, and the fixed maintenance cost component is $5,220.

Step-by-step explanation:

The question seeks to analyze the fixed and variable components of the maintenance cost provided by Deidoro company. To determine these components, we can use the high-low method where the difference in costs divided by the difference in machine hours will provide the variable cost rate.

First, calculate the difference in costs between the current year and the prior year:

$36,300 - $32,100 = $4,200

Then, calculate the difference in machine hours between the current year and the prior year:

22,200 hours - 19,200 hours = 3,000 hours

Now, divide the cost difference by the hour difference to find the variable cost rate:

$4,200 / 3,000 hours = $1.40 per machine hour.

To find the fixed cost, substitute the variable rate and one set of machine hours and maintenance costs into the equation:

Fixed Cost + Variable Rate (Machine Hours) = Total Maintenance Cost

Fixed Cost + ($1.40 × 19,200) = $32,100

Fixed Cost = $32,100 - ($1.40 × 19,200)

Fixed Cost = $32,100 - $26,880

Fixed Cost = $5,220

Therefore, the fixed maintenance cost is $5,220 and the variable cost is $1.40 per machine hour.