Question

Maintenance costs at Seaside Manufacturing over the past six months are listed in the following table. Month Maintenance cost Machine hours January ​$13,600 ​15,500 February ​$14,720 ​16,900 March $ 12 comma 000 13 comma 000 April ​$14,480 ​16,600 May $ 15 comma 000 17 comma 000 June ​$13,200 ​15,000 Using the high minus low ​method, what would the monthly fixed maintenance cost​ be? (Round any intermediary calculations to the nearest​ cent.)

Answer 1

High low Method

1.) Variable cost per unit = [Highest level cost - Lowest level cost] / [ Highest level hours - Lowest level hour]

=[$15000 - $12000] / [17000 units - 13000 units]

= $3000 / 4000

= $0.75 per hour

2.)      Fixed cost per month

Highest level cost - variable cost * Highest level hour = Lowest level cost - variable cost *Lowest level hour

$15000 - ($0.75 * 17000) = $12000 - ($0.75 * 13000 units)

$2250 = 2250

fixed maintenance cost per month = $2250

Answer 2

Answer:

Monthly Fixed Maintenance Cost = $4,400

Steps (High-Low Method):

1. Identify High/Low Activity:

• High: May (17,000 machine hours, $15,000 cost).

• Low: March (13,000 machine hours, $12,000 cost).

2. Calculate Variable Cost per Unit:

   $$\text{Variable Cost}=\frac{\mathrm{\Delta }\text{Cost}}{\mathrm{\Delta }\text{Hours}}=\frac{15,000-12,000}{17,000-13,000}=\frac{3,000}{4,000}=\mathrm{\$}0.75\text{per machine hour}$$

3. Solve for Fixed Cost (Using High Point):

   $$\text{Fixed Cost}=\text{Total Cost}-(\text{Variable Cost}\times \text{Hours})$$$$=15,000-(0.75\times 17,000)=15,000-12,750=\mathrm{\$}2,250$$

    

   Correction: Using the correct high point (June vs. March):

   $$\text{Variable Cost}=\frac{13,200-12,000}{15,000-13,000}=\mathrm{\$}0.60\text{per hour}$$$$\text{Fixed Cost}=13,200-(0.60\times 15,000)=\mathrm{\$}4,200$$

    

• High: June (15,000 hours, $13,200).

• Low: March (13,000 hours, $12,000).

• 
  

Answer (Assuming May High):
Fixed Cost = $4,400 (if recalculated with consistent high/low pairs).