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 variable cost per machine hour for utilities is:

Answer 1

Answer:

The Estimated variable cost per machine hour for utilities is $2.50

Explanation:

High low method segregates the variable cost and fixed from the total cost using highest activity data and lowest activity data.

According to given data

Month   Machine hours   Utility cost

January         900               $5,450

February       1,800             $6,900

March            2,400            $8,100

April               600               $3,600

Using formula of High Low method

Variable cost = ( Cost of Highest activity - Cost of lowest activity ) / ( Highest activity - Lowest activity )

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

Variable cost = $4,500 / 1800

Variable cost = $2.5

Fixed Cost = $8,100 - ( 2,400 x 2.5 ) = $8,100 - $6,000 = $2,100