Question

The cost data for Evencoat Paint for the year 2019 is as follows:

Month	Gallons of Paint Produced				Equipment Maintenance Expenses
January		110,000				$70,700
February		68,000				66,800
March		71,000				67,000
April		77,000				68,100
May		95,000				69,200
June		101,000				70,300
July		125,000				70,400
August		95,000				68,900
September		95,000				69,500
October		89,000				68,600
November		128,000				72,800
December		122,000				71,450

A. Using the high-low method, express the company’s maintenance costs as an equation where x represents the gallons of paint produced. Then estimate the fixed and variable costs.

Fixed cost $

Variable cost $

B. Predict the maintenance costs if 90,000 gallons of paint are produced.

Maintenance cost $

C. Predict the maintenance costs if 81,000 gallons of paint are produced.

Maintenance cost $

Answer 1

Variable cost = (Cost at highest activity - Cost at lowest activity) /(Highest activity-Lowest activity)

= (72,800-66,800)/(128,000-68,000) = 0.10

Fixed cost = 72,800 - (128,000*0.10) = 60,000

A.

Fixed cost	60,000
Variable cost	0.10

B.

Maintenance cost = (90,000*0.1) + 60,000

= 69,000

C.

Maintenance cost = (81,000*0.1) + 60,000

= 68,100