Question

Data concerning Nelson Company's activity for the first six months of the year appear below: Machine Hours Electrical Cost January 4,000 $3,120 February 6,000 $4,460 March 4,800 $3,500 April 3,800 $3,040 May 3,600 $2,900 June 4,200 $3,200 Using the high-low method of analysis, the estimated monthly fixed component of the electrical cost is: $1,520 $440 $260 $560

Answer 1

Answer:

$560

Explanation:

As we know that the total cost would be a sum of fixed cost and the variable cost

In mathematically,

Total cost = Fixed cost + variable cost

But in the question, the variable cost is not given, so first, we have to find that based on high low method.

So, the variable cost equals to

= Change in total cost ÷ change in machine hours

= ($4,460 - $2,900) ÷ (6,000 -  3,600)

= $1,560 ÷ 2,400

= 0.65

Now the fixed cost equal to

= Total cost - variable cost

= $4,460 - (6,000 × 0.65)

= $4,460 - $3,900

= $560