Question

Denver Manufacturing Denver Manufacturing would like to do a better job budgeting for maintenance costs and, consequently, they have prepared a schedule showing maintenance costs and units produced for the past five months as follows: Lanuary Februar Number of units produced 5,400 6,600 4,900 5,600 6,000 Total maintenance costs $4,800 5,180 4,500 4.900 5,490 March April May Refer to the Denver Manufacturing information above. Using the high/low method, if Denver expects to produce 4,830 units in June, what will be budgeted total maintenance costs? $4,742 $4,472 $4,540 $4.670

Answer 1

Option (B) is correct High Low Month Number of Units Produced Total Maintenance costs Feb 6600 $ 5,180.00 Mar 4900 $ 4,500.00 Variable Cost per Unit = (5180-4500)/(6600-4900) 0.40 Per Unit Total Cost At 6600 level = $5180 Total cost = variable cost + Fixed cost $5180 = 6600*$0.40 + Fixed cost Fixed Cost = $5180-$2640 2,540.00 Therefore, Total Maintenace costs at 4830 units in June- 4830 Units * $0.40 + $2540 4,472.00