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 six months.
Month Machine hours Maintenance cost
January 61500 125,000
February 82,000 15,1500
March 76000 132,400
APril 75400 40500
May 86300 151000
June 71750 122600
Using the high-low method and the Willco data, calculate the variable maintenance cost per machine hour (round to three decimal places).
a. $0.913/hr.
b. $1.048/hr.
c. $1.069/hr.
d. $1.848/hr.
e. $1.293/hr.

Answer 1

Answer:

Variable cost per unit= $1.048

Explanation:

Giving the following information:

Highest activity cost= $151,000

Highest activity units= 86,300

Lowest activity cost= $125,000

Lowest activity units= 61,500

To calculate the 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=  (151,000 - 125,000) / (86,300 - 61,500)

Variable cost per unit= $1.048