Question

E5-5 The controller of Hall Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs. Determine fixed and variable costs using the high-lovw method and prepare graph. (LO 1, 2), AP Total Maintenance Costs $2,640 3,000 3,600 4,500 3,200 4,620 Total Machine Hours 3,500 4,000 6,000 7,900 5,000 8,000 Month January February March April May June (a) Determine the fixed- and variable-cost components using the high-low method.

Answer 1

Ans:

a1)Variable cost per machine hour = Change in cost/Change in Machine hours

i.e [Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

= ($4,620-$2,640)/(8,000-3,500)

Variable cost per machine hour = $0.44 per machine hour

a2) Fixed cost = Total Maintenance cost-Variable cost

       Apply above equation for june month to calculate fixed cost component

                        = $4,620-(8,000hrs*$0.44)

       Fixed cost = $1,100