Exercise 22-2 The controller of Norton Industries has collected the following mo
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Question
Exercise 22-2 The controller of Norton Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs. Total Maintenance Costs Total Machine Hours Month January February March April May June $2,830 3,130 3,730 4,630 3,330 5,750 350 500 690 500 700 Determine the variable cost components using the high-low method. (Round variable cost to 3 decimal places e.g. 12.250.) Variable cost per machine hour Determine the fixed components using the high-low method. (Round answer to O decimal places e.g. 2,520.) Total fixed costs lick if you would like to Show Work for this question:Explanation / Answer
Variable cost per machine hour = $ 7.3
Total fixed cost = $ 640
Calculation under High low method:-
Total cost at lowest level of activity = Y1
Total cost at highest level of activity = Y2
No. of Machine hours at lowest level of activity = X1
No. of Machine hours at highest level of activity = X 2
In the given problem
Y1 = $ 2830
Y2 = $ 5750
X1 = 300 machine hours
X2 = 700 machine hours
Variable cost per machine hour (a) = (Y2 - Y1) / ( X2 - X1)
= ( 5750 - 2830) /( 700 - 300)
Variable cost per machine hour (a) = $ 7.3
Total fixed cost (b) = Y2 - (b) X2 = Y1 - (b) X1
= 5750 - 7.3(700) = 2830 - 7.3(300) = $ 640
Total fixed cost (b) = $ 640
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