Question

At the high level of activity in November, 6000 machine hours were run and power costs were $18000. In April, a month of low activity, 1000 machine hours were run and power costs amounted to $9000. Using the high-low method, the estimated fixed cost element of power costs is $9000. $10800. $18000. $7200.

Answer 1

Answer:

The answer is "$\bold{\ 7,200}$"

Explanation:

Using the High - Low method:

$\to Variable \ cost= \frac{\text{(Highest Activity cost - Lowest Activity cost)}}{\text{( Highest Activity Units - Lowest Activity Units)}}$

                          $= \frac{(\ 18000 - \ 9000)}{(6000 - 1000)}\\\\= \frac{(\ 9000)}{(5000)}\\\\= \frac{(\ 9)}{(5)}\\\\= \ 1.8/ unit$

$\to Fixed \ Cost = \text{Highest Activity cost} - \text{(Variable cost per unit} \times \text{Highest Activity Units)}$                              

                       $= \ 18000 - ( \ 1.8 \times 6000)\\\\= \ 18000 - \ 10800 \\\\= \ 7,200$