Question

Question 2 Moresan Co. gathered the following information on power costs and factory machine usage for the last six months: Month Power Cost Factory Machine Hours January $24,400 13,900 February 30,400 17,600 March 29,000 16,800 April 22,340 13,200 May 19,900 11,600 June 16,900 8,600 Using the high-low method of analyzing costs, answer the following questions.

What is the estimated variable portion of power costs per factory machine hour? (Round answer to 2 decimal places, e.g. 15.25.) Variable power costs $ per factory machine hour

What is the estimated fixed power cost each month? High Low Fixed power costs $ $ The Palmer Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $115 a night. Operating costs are as follows. Salaries $5,500 per month Utilities $1,000 per month Depreciation $1,200 per month Maintenance $1,868 per month Maid service $31 per room Other costs $61 per room Determine the inn’s break-even point in number of rented rooms per month. Break-even point rooms Determine the inn’s break-even point in dollars. Break-even point $

Answer 1

(A)

Variable cost = (highest activity level costs - lowest activity level costs)/(Highest activity level units - lowest activity level units)

= ($30400 - $16900)/(17600 - 8600)

= $1.5 per factory machine hour

(B)

note: fixed costs are the same at any level of activity

at highest activity level

fixed costs = $30400 - (17600 x $1.5)

= $4000

at lowest activity level

fixed costs = $16900 - (8600 x $1.5)

= $4000