Question

uses the high-low method to analyze cost behavior. The company observed that at 20,000 machine hours of activity, total maintenance costs averaged $10.50 per hour. When activity jumped to 24,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $9.75. On the basis of this information, the company's fixed maintenance costs were:

Answer 1

Answer:

$90,000

Explanation:

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

Variable cost per hour = (High cost - low cost) ÷ (High machine hours - low machine hours)

= ($234,000 - $210,000) ÷ (24,000 hours -20,000 hours)

= $24,000 ÷ 4,000 hours

= $6

Now the fixed cost equal to

= High cost - (High machine hours × Variable cost per hour)

= $234,000 - (24000 hours × $6)

= $234,000 - $144,000

= $90,000

The high cost is computed below:

= 20,000 hours × $10.50

= $210,000

And, the low cost would be

= $24,000 hours × $9.75

= $234,000