Question

Illinois Company is attempting to develop the cost function for repair costs. The following past data are available: Machine Hours Repair Costs 2,400 $6,385 1,200 $3,480 2,000 $5,285 3,400 $8,980 Using the high-low method, what is the Fixed repair cost

Answer 1

$480

Step-by-step explanation:

Data provided in the question:

Machine Hours Repair Costs

2,400 $6,385

1,200 $3,480

2,000 $5,285

3,400 $8,980

Now,

Machine Hours Repair Costs

Highest 3,400 $8,980

Lowest 1,200 $3,480

Difference 2,200 $5,500

Unit variable cost = $5,500 ÷ 2,200

= $2.5

Total cost at high level = $8,980

Machine hours highest level = 3,400

Also,

Total cost at high level = Fixed cost + Variable cost at highest level

or

$8,980 = Fixed cost + [ $2.5 × 3,400 ]

or

Fixed cost = $8,980 - [ $2.5 × 3,400 ]

= $8,980 - $8,500

= $480