Question

Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to calculate Smithson's fixed costs per month. Round variable cost per unit to two decimal places in your calculations.
Cost Machine Hours
January $52,200 20,000
February 75,000 29,000
March 57,000 22,000
April 64,000 24,500

(A) $2,530
(B) $22,800
(C) $1,600
(D) $50,600

Answer 1

Answer:

The correct answr is C.

Explanation:

Giving the following information:

Cost Machine Hours

January $52,200 20,000

February 75,000 29,000

March 57,000 22,000

April 64,000 24,500

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

Variable cost per unit= (75,000 - 52,200) / (29,000 - 20,000)= 2.53

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

Fixed costs= 75,000 - (2.53*29,000)= 1600

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

Fixed costs= 52,200 - (2.53*20,000)= 1600