Question

Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to determine Smithson's fixed costs per month. Round your final answer to the nearest dollar. Do not round interim calculations. Cost Machine Hours January $26,300 10,000 February 36,700 18,400 March 28,400 12,400 April 31,400 14,900 a.$23,662 b.$44,541 c.$13,919 d.$11,135

Answer 1

The correct answer is C.

Step-by-step explanation:

Giving the following information:

Cost - Machine Hours

January: $26,300 - 10,000

February: $36,700 - 18,400

March: $28,400 - 12,400

April: $31,400 - 14,900

Using the high-low method, first, we need to calculate the variable cost per unit. 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= (36,700 - 26,300) / (18,400 - 10,000)

Variable cost per unit= $1.2381 per unit

Now, we can calculate the fixed costs:

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

Fixed costs= 36,700 - (1.2381*18,400)= 13,918.96= $13,919

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 26,300 - (1.2381*10,000)= $13,919