Answer:
Total Fixed Cost: $13,020
Explanation:
Fixed cost is calculated using high low method.
High low method seeks to find variable cost per hour / unit by dividing the difference of cost (total cost at two levels) with difference of activity level. Than variable cost is reduced from total cost to identify the fixed cost. Below is the calculation:
Current year cost: $ 37,850 Current year machine hours: 19,100
Prior year cost: $ 33,300 Prior year machine hours: 15,600
Variable cost per machine hour = <u>Current year cost - Prior year cost</u>
Current year machine hour - prior year machine hour
Variable cost per machine hour: <u>37,850 - 33,300</u> = $1.30 per machine hour
19,100 - 15,600
Variable cost current year: ($1.30 * 19,100) = $24,830
Variable cost prior year: ($1.30 * 15,600) = $20,280
Fixed cost: Total cost - variable cost
Fixed cost current year: 37,850 - 24,830 = $13,020
Fixed cost prior year: 33,300 - 20,280 = $13,020
