Question

Collins Company had the following cost data available. The Collins accountant believes that direct labor hours is the correct cost driver to use to predict and manage these costs.$100,000; 15,000 direct labor hours for January$80,000; 12,000 direct labor hours for February$90,000; 14,000 direct labor hours for March$75,000; 11,000 direct labor hours for April$85,000; 12,500 direct labor hours for May$70,000; 10,000 direct labor hours for JuneUse the high-low method to compute the total amount of monthly fixed costs for Collins Company.
a) $10,000b) $0c) $15,000d) $90,000e) $60,000f) $30,000

Answer 1

Answer:

a) $10,000

Explanation:

The computation of the fixed cost by using high low method is shown below:

Before that first we have to determine the variable cost per direct labor hours which is shown below:

Variable cost per hour = (High Operating cost - low operating cost) ÷ (High labor  hours - low  labor hours)

= ($100,000 - $70,000) ÷ (15,000 hours - 10,000 hours)

= $30,000 ÷ 5,000 hours

= $6

Now the fixed cost equal to

= High operating cost - (High  labor hours × Variable cost per hour)

= $100,000 - (15,000 hours × $6)

= $100,000 - $90,000

= $10,000

hence, the correct option is a . $10,000