Question

Barkoff Enterprises, which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,200 machine hours, with the following data being available for the first six months of the year:
Month Utilities Machine Hours
January $ 9,600 890
February 9,260 810
March 9,850 900
April 10,260 1,010
May 10,732 1,040
June 10,050 990
The fixed utilities cost per month for Barkoff is:

Multiple Choice

$3,440.

$4,076.

$4,436.

$4,776.

None of the answers is correct.

Answer 1

Answer:

The correct answer is B.

Explanation:

Giving the following information:

Month Utilities Machine Hours

January $ 9,600 890

February 9,260 810

March 9,850 900

April 10,260 1,010

May 10,732 1,040

June 10,050 990

To calculate the fixed cost, first, we need to calculate the unitary variable cost using the following formula:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (10,732 - 9,260) / (1,040 - 810)

Variable cost per unit= $6.4

Now, we can calculate the fixed cost:

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 10,732 - (6.4*1,040)= $4,076

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 9,260 - (6.4*810)= $4,076