Question

Hitchcock, Inc., uses the high-low method to analyze cost behavior. The company observed that at 12,000 machine hours of activity, total maintenance costs averaged $7.00 per hour. When activity jumped to 15,000 machine hours, which was still within the relevant range, the average cost per machine hour totaled $6.40. On the basis of this information, the variable cost per machine hour was:

Answer 1

Answer:

Variable cost per unit= $4

Explanation:

Giving the following information:

Activity Total cost

12,000  $84,000 (12,000*7)

15,000  $96,000 (15,000*6.4)

To calculate the unitary variable cost under the high-low method, we need to use the following formula:

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

Variable cost per unit= (96,000 - 84,000) / (15,000 - 12,000)

Variable cost per unit= $4