You are production manager at First Tool Company. You want to know what the cost
ID: 2331822 • Letter: Y
Question
You are production manager at First Tool Company. You want to know what the cost function is for Support Costs, and you know that your Cost Driver is machine hours. Given the following information compute the Cost Function for Support Costs using the High / Low Method.
Month
Machine Hours
Support Costs
May
1,700
22,000
June
1,600
21,000
July
1,500
19,500
August
1,400
18,500
September
1,300
18,000
Your answer format is ... "$#,### + $##.## per machine hour"
Month
Machine Hours
Support Costs
May
1,700
22,000
June
1,600
21,000
July
1,500
19,500
August
1,400
18,500
September
1,300
18,000
Explanation / Answer
Variable cost per machine hour = Change in support cost/Change in machine hour
= (22000-18000)/(1700-1300)
Variable cost per machine hour = $10.00 per machine hour
Fixed cost = 22000-(1700*10) = $5,000
Cost formula = Y = $5,000+$10.00X
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