Question

Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to calculate Smithson's fixed costs per month. Round your final answer to the nearest dollar. Do not round interim calculations. Cost Machine Hours January $26,000 10,500 February 37,100 17,700 March 29,000 11,500 April 30,900 15,300 a.$9,812 b.$16,680 c.$7,850 d.$31,398

Answer 1

Answer:

Fixed Cost = $9812.499999941 rounded off to $9812

Option A is the correct answer

Explanation:

The high-low method is used to separate the components of a mixed cost and it calculates the variable cost component in a mixed cost. The formula to calculate the variable cost per unit under the high-low method is as follows,

VC/unit = [Highest Activity cost - Lowest Activity Cost] / [Highest Activity units - Lowest Activity units]

VC/unit = [37100 - 26000] / [17700 - 10500]

VC/unit = 1.54166666667 rounded off to $1.54

The total fixed costs will be,

Fixed cost = 37100 - [1.54166666667 * 17700]

Fixed Cost = $9812.499999941 rounded off to $9812