Question

Gentry Industries has the following information about maintenance costs in the past six months.

Answer 1

Answer:

Total cost= $5,425

Step-by-step explanation:

Giving the following information:

Month Machine _Hours Amount

January 200 $2,800

February 350 3,000

March 450 4,000

April 500 5,000

May 600 5,200

June 580 5,800

First, we need to calculate the fixed and variable costs. To do it, we will use the high-low method:

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

Variable cost per unit= (5,800 - 2,800) / (600 - 200)

Variable cost per unit= $7.5 per hour

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

Fixed costs= 5,800 - (7.5*600)

Fixed costs= $1,300

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

Fixed costs= 2,800 - (7.5*200)

Fixed costs= $1,300

Now, we can determine the total cost for 550 hours:

Total cost= 1,300 + 7.5*550

Total cost= $5,425