Question

On the basis of this information, what were total maintenance costs when the company experienced 23,000 machine hours of activity, total maintenance costs averaged $34.30 per hour. When activity jumped to 27,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $27.30.
a. On the basis of this information, the variable cost per machine hour was:___________
b. On the basis of this information, the fixed cost was:___________-
c. On the basis of this information, what were total maintenance costs when the company experienced 25,000 machine hours?

Answer 1

Answer:

Results are below.

Explanation:

First, we need to calculate the total cost for each activity level:

High activity level= 27,000*27.3= $737,100

Low activity level= 23,000*34.3= $788,900

Now, using the high-low method, we can determine the variable and fixed costs:

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

Variable cost per unit= (788,900 - 737,100) / (27,000 - 23,000)

Variable cost per unit= $12.95 per machine-hour

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

Fixed costs= 788,900 - (12.95*27,000)

Fixed costs= $439,250

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

Fixed costs= 737,100 - (12.95*23,000)

Fixed costs= $439,250

Finally, for 25,000 hours:

Total cost= 439,250 + 12.95*2,5000

Total cost= $763,000