Fernicus Company gathered the following information on power costs and factory m
ID: 2338617 • Letter: F
Question
Fernicus Company gathered the following information on power costs and factory machine usage for the last five months.
Month
Power Cost
Factory Machine Hours
January
P48,000
19,000
February
35,000
15,500
March
50,000
18,500
April
41,000
17,000
May
40,000
15,000
Instructions: Use the high-low method of analyzing costs to answer the following questions.
1. How much is the estimated variable portion of power costs per factory machine hour?
2. How much is the estimated fixed power cost each month?
3. If it is estimated that 18,000 factory machine hours will be run in June, what is the expected total power costs for June?
Explanation / Answer
Answer
Month
Machine hours
Cost
Jan
19,000
$ 48,000.00
Feb
15,500
$ 35,000.00
Mar
18,500
$ 50,000.00
Apr
17,000
$ 41,000.00
May
15,000
$ 40,000.00
5
85,000
$ 214,000.00
Months
Units
Cost
High Level
Jan
19000
$ 48,000.00
Low Level
May
15000
$ 40,000.00
Difference
4000
$ 8,000.00
Difference in Cost
$ 8,000.00
Difference in units
4000
Variable cost per unit
$ 2.00
Answer: Variable cost = $ 2.00 per factory machine hour
Working
High Level
Low Level
A
Total Cost
$ 48,000.00
$ 40,000.00
B
Total Units
19000
15000
C
Variable cost per unit
$ 2.00
$ 2.00
D = B x C
Total Variable cost
$ 38,000.00
$ 30,000.00
E = A - D
Total Fixed Cost
$ 10,000.00
$ 10,000.00
Answer: Estimated Fixed cost = $ 10,000
Expected total cost for June = (18,000 machine hours x $ 2 per machine hours) + $ 10,000
= (18000 x 2) + 10000
= 36000 + 10000
= $ 46,000
Answer = $ 46,000
Month
Machine hours
Cost
Jan
19,000
$ 48,000.00
Feb
15,500
$ 35,000.00
Mar
18,500
$ 50,000.00
Apr
17,000
$ 41,000.00
May
15,000
$ 40,000.00
5
85,000
$ 214,000.00
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