Question

Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget. Examination of past records disclosed the following costs and volume measures: Highest Lowest Cost per month $ 42,000 $ 34,000 Machine hours 46,000 30,000 Using the high-low method, the estimated variable cost per machine hour is:

Answer 1

Variable cost per machine hour= $0.5

Step-by-step explanation:

Giving the following information:

Highest Lowest

Cost per month $ 42,000 $ 34,000

Machine hours 46,000 30,000

To calculate the unitary variable cost per machine hour, we need to use the following formula:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (42,000 - 34,000) / (46,000 - 30,000)

Variable cost per unit= $0.5