Question

The following information is available for a company's utility cost for operating its machines over the last four months.

Month Machine hours Utility cost
January 900 $ 5,450
February 1,800 $ 6,900
March 2,400 $ 8,100
April 600 $ 3,600
Using the high-low method, the estimated total fixed cost for utilities is:______
a. $1,500.
b. $3,600.
c. $6,000.
d. $3,300.
e. $2,100.

Answer 1

Fixed costs= $2,100

Step-by-step explanation:

Giving the following information:

January 900 $ 5,450

February 1,800 $ 6,900

March 2,400 $ 8,100

April 600 $ 3,600

To calculate the total fixed costs under the high-low method, we need to use the following formulas:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (8,100 - 3,600) / (2,400 - 600)

Variable cost per unit= $2.5

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

Fixed costs= 8,100 - (2.5*2,400)= $2,100

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

Fixed costs= 3,600 - (2.5*600)= $2,100