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 910 $ 6,460 February 1,810 $ 6,920 March 2,420 $ 8,100 April 610 $ 4,580 Using the high-low method, the estimated variable cost per machine hour for utilities is:

Answer 1

Answer:

$2.159

Explanation:

Data provided:

Month            Machine hours            Utility cost

January            910                           $ 6,460

February          1,810                         $ 6,920

March               2,420                       $ 8,100

April                  610                           $4,580

Now,

The highest machine hours = 2,240

The lowest machine hours = 610

and,

The highest utility cost = $8,100

The lowest utility cost = $4,580

According to the high-low method, we have

Variable cost per unit

=( highest utility cost - lowest utility cost ) / ( highest machine hours - Lowest machine hours )

or

= ( $8,100 - $4,580 ) / ( 2,240 - 610 )

= $3520 / 1630

= $2.159

hence,

the estimated variable cost per machine hour is $2.159