Question

At the high level of activity in November, 6000 machine hours were run and power costs were $18000. In April, a month of low activity, 1000 machine hours were run and power costs amounted to $9000. Using the high-low method, the estimated fixed cost element of power costs is $9000. $10800. $18000. $7200.

Answer 1

The answer is "
`\bold{\$7,200}`"

Step-by-step explanation:

Using the High - Low method:

`\to Variable \ cost= \frac{\text{(Highest Activity cost - Lowest Activity cost)}}{\text{( Highest Activity Units - Lowest Activity Units)}}`

`= ((\$18000 - \$9000))/((6000 - 1000))\\\\= ((\$9000))/((5000))\\\\= ((\$9))/((5))\\\\= \$1.8/ unit`

`\to Fixed \ Cost = \text{Highest Activity cost} - \text{(Variable cost per unit} * \text{Highest Activity Units)}`

`= \$18000 - ( \$1.8 * 6000)\\\\= \$18000 - \$ 10800 \\\\= \$7,200`