Question

Ajax Company presently leases a copy machine on a monthly basis. The lease agreement requires a fixed fee each month in addition to a charge per copy. The Company made 2,400 copies and paid a total of $162 in lease payments in September. In October they made 3,500 copies and paid a total of $195 in lease payments. Using these two data points and the high-low method, determine the Company’s variable cost per copy.

Answer 1

Variable cost per copy =$ 0.03

Step-by-step explanation:

The high and low techniques helps to analyse a cost into its variable and fixed cost component.

The formula is given below:\

Variable cost per copy = (cost at high act. - cost at low act)/(high act - low act)

Fixed cost = cost at high activity - (Vc/copy × high act)

VC per copy = ( 195 - 162)/(3500-2400) copies

=$ 0.03 per copy

Total fixed cost = 195 - (0.03× 3500)

= 195 - 105

=$90