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frosja888 [35]
3 years ago
12

At the high level of activity in November, 12000 machine hours were run and power costs were $22000. In April, a month of low ac

tivity, 5000 machine hours were run and power costs amounted to $15000. Using the high-low method, the estimated fixed cost element of power costs is
Business
1 answer:
NISA [10]3 years ago
4 0

Answer:

The estimated fixed cost element of power costs is $10,000

Explanation:

For computing the fixed cost first we have to calculate the variable cost per unit which is shown below:

= (High power cost -  low power cost) ÷ (High machine hours - low machine hours)

= ($22,000 - $15,000) ÷ (12,000 - 5,000)

= $7,000 ÷ 7,000

= $1

Now the fixed cost would be

= (High power cost) - (high machine hours × variable cost per unit)

= $22,000 - 12,000 × $1

= $22,000 - $12,000

= $10,000

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Unfortunately, the company contribution is negative. Even at maximum revenue it cannot cover the variable cost needed to produce this revenue. Therefore, is not possible to make a gross profit to afford the rest of the cost. Currently, the company has their fixed cost and the loss from operations.

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А is a measure of change in the prices of goods from one period to<br> another.
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