Question

The controller of Gutierrez Industries has collected the following monthly expense data for use in analyzing the cost behaviour of maintenance costs:

Month		Total Maintenance Costs			Total Machine Hours
January		$2,740			3,000
February		3,150			4,050
March		3,950			6,150
April		4,570			8,200
May		3,290			5,500
June		5,178			8,300

Determine the variable-cost component using the high-low method. (Round answer to 2 decimal places e.g. 12.25.)

Variable cost

$

per machine hour

Determine the fixed cost component using the high-low method.

Fixed cost

$

Determine the fixed cost component using the high-low method.

Fixed cost

$

Answer 1

Calculation of Variable cost using High-low method :

Variable cost per machine hour :

=(Highest maintenance cost - Lowest maintenance cost) /(Highest machine hrs - Lowest machine hrs)

=(5178-2740)/(8300-3000)

=0.46 per machine hour

Calculation of fixed Cost :

Fixed cost = Highest maintenance cost - (Highest machine hrs x Variable cost per machine hour)

=5178-(8300x0.46)

=1,360

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