The following information is available for a company’s maintenance cost over the

Question

The following information is available for a company’s maintenance cost over the last seven months.

Using the high-low method, estimate both the fixed and variable components of its maintenance cost.

The following information is available for a company’s maintenance cost over the last seven months.

Month Maintenance Hours Maintenance Cost June 11 $ 5,050 July 17 6,850 August 13 5,650 September 16 6,550 October 22 8,350 November 25 9,250 December 7 3,850

Using the high-low method, estimate both the fixed and variable components of its maintenance cost.

Explanation / Answer

Using the high-low method, estimate both the fixed and variable components of its maintenance cost.

High-Low method - Calculation of variable cost per maintenance hour Change in cost Cost at high point minus cost at low point (9250-3850) Variable cost per maintenance hour = 300 Change in volume Volume at high point minus volume at low point (25-7) Total cost at the high point $9250.00 Variable costs at the high point: Volume at the high point: 25 hours Variable cost per maintenance hour 300 Total variable costs at the high point                      7500 Total fixed costs 1750 Total cost at the low point 3850 Variable costs at the low point:                   Volume at the low point: 7 Variable cost per maintenance hour 300 Total variable costs at the low point                       2100 Total fixed costs 1750

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