Question

Willco Inc manufactures electronic parts. They are analyzing their monthly maintenance costs to determine the best way to budget these costs in the future. They have collected the following data for the last 6 months: Machine Hours Maintenance Costs January 30,000 $61,946 February 40,000 $74,500 March 37,500 $65,900 April 39,000 $68,750 May 42,300 $74,000 June 35,000 $64,500 Using the high-low method, what is the fixed cost component of the monthly maintenance.

Answer 1

Answer:

Fixed costs= $31,312

Explanation:

Giving the following information:

January 30,000 $61,946

February 40,000 $74,500

March 37,500 $65,900

April 39,000 $68,750

May 42,300 $74,000

June 35,000 $64,500

To calculate the fixed costs under the high-low method, we need to use the following formulas:

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

Variable cost per unit= (74,500 - 61,946) / (42,300 - 30,000)

Variable cost per unit= $1.021

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

Fixed costs= 74,500 - (1.021*42,300)

Fixed costs= $31,312

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

Fixed costs= 61,946 - (1.021*30,000)

Fixed costs= $31,316