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 1,040 $ 6,590 February 1,940 $ 7,180 March 2,680 $ 8,100 April 740 $ 4,650 Using the high-low method, the estimated variable cost per machine hour for utilities is:

Answer 1

Answer:

                          Machine hours (X)        Utility cost

       High                2,680                          8,100

        Low               (740)                           (4,650)

                              1,940                           3,450

Variable cost per machine hour

= $3,450/1,940 hours

= $1.7784 per machine hour

Explanation:

Using high and low method, we will obtain the highest activity (machine hours) and the corresponding cost. We will also obtain the lowest activity and the corresponding cost. Thereafter, we will deduct the lowest points from the highest points. Finally, we will divide the difference in cost by the difference in machine hours in order to determine the estimated variable cost per machine hour.