Question

Sheffield Corp.’s high and low level of activity last year was 67000 units of product produced in May and 27000 units produced in November. Machine maintenance costs were $272600 in May and $120600 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 41000 units.

Answer 1

The correct answer is $173,800.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

We can calculate the total maintenance cost by using following formula :

Total maintenance cost = Fixed cost + ( Units × Units variable cost)

Where, Units variable cost = ($272600 - $120600) ÷ ( 67000 - 27000)

= 152,000 ÷ 40,000 = $3.8

And Fixed cost = $272600 - ( 67000 × $3.8)

= $272,600 - $254,600 = $18,000

By putting the value in the formula, we get

Total maintenance cost = $18,000 + ( 41,000 × $3.8)

= $18,000 + $155,800

= $173,800