Question

Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to calculate Smithson's fixed costs per month. Cost Machine Hours January $88,020 9,800 February 150,430 17,700 March 103,350 11,700 April 129,310 15,000 a.$33,900 b.$18,000 c.$8,500 d.$10,600

Answer 1

d. $10,600

Step-by-step explanation:

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

Variable cost = ($150,430 - $88,020) / (17,700 - 9,800)

Variable cost = $62,410 / 7,900

Variable cost = $7.9

Fixed cost = Highest activity cost - (Variable cost per unit*Highest activity units)

Fixed cost = $150,430 - ($7.9*17,700)

Fixed cost = $150,430 - $139,830

Fixed cost = $10,600