Battle Company, which uses the high-low method to analyze cost behavior, has det

Question

Battle Company, which uses the high-low method to analyze cost behavior, has determined that machine hours best predict the company's total utilities cost. The company's cost and machine hour usage data for the first six months of the year follow: Using the high-low method, answer the following questions: What is the variable utilities cost per machine hour? What is the fixed cost of utilities each month? If Battle Company uses 1,290 machine hours in a month, what will its total costs be? What is the variable utilities cost per machine hour? Let's begin by determining the formula that is used to calculate the variable cost (slope).

Explanation / Answer

Statement showing computations Particulars Amount Cost at highest level of activity                      4,076.00 Cost at Lowest level of activity                      3,388.00 Highest level of activity                      1,460.00 Lowest Level of activity                      1,030.00 Variable cost per unit = (4076-3388)/(1460-1030) Variable cost per unit = 688/430 Variable cost per unit = 1.60 Fixed Costs = 4076 - 1460*1.60 Fixed Costs = 4076 - 2336 Fixed Costs = 1740 If 1290 Hours cost would be   Cost = 1740 + 1290*1.60 Cost = 1740 + 2064 Cost = 3,804

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