Question

The Gabbana Company’s maintenance costs are a mixed cost. At the low level of activity (40 direct labor hours), maintenance costs are $600. At the high level of activity (100 direct labor hours), maintenance costs are $1,100. Using the high-low method, the variable maintenance cost per unit would be ________ and the total fixed maintenance cost would be.

Answer 1

Answer:

The variable maintenance cost per unit would be $8.33 and the total fixed maintenance cost would be $267

Explanation:

The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

Variable maintenance cost per unit = (High maintenance cost - low maintenance cost) ÷ (High level of activity - low level of activity)

= ($1,100 - $600) ÷ (100 direct hours - 40 direct hours)

= $500 ÷ 60 direct hours

= $8.33

Now the fixed cost equal to

= High maintenance cost - (High level of activity × Variable maintenance cost per unit )

= $1,100 - (100 direct hours × $8.33)

= $1,100 - $833.33

= $267