Question

The following data pertains to activity and the cost of maintenance for two recent months: Month 1 Month 2 Production Volume 2000 units 2500 units Maintenance Cost $900 $1,100 Based on the Hi-Low Method, the best estimate of the monthly fixed cost for maintenance is:

Answer 1

Fixed cost= $100

Step-by-step explanation:

The high low method considers the level of highest activity and lowest activity, and compares cost at each of these levels.

It is a useful way of calculating variable cost and fixed cost.

The variable cost= (High activity cost - Low activity cost)/ (High activity units- Low activity units)

Variable cost= (1,100-900)/ (2,500-2,000)

Variable cost = 200/500= $0.4

Fixed cost= High activity cost- (variable cost* High activity units)

Fixed cost= 1,100- (0.4* 2,500)

Fixed cost= 1,100- 1,000

Fixed cost= $100