The controller of Norton Industries has collected the following monthly expense
ID: 2465712 • Letter: T
Question
The controller of Norton Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs.
Month
Total
Maintenance Costs
Total
Machine Hours
720 A. Determine the variable cost components using the high-low method.
B. Determine the fixed cost components using the high-low method.
Month
Total
Maintenance Costs
Total
Machine Hours
720 A. Determine the variable cost components using the high-low method.
Explanation / Answer
a.
Calculation of variable cost components using the high-low method:
Month
Total Maintenance Costs
Total Machine Hours
January
$ 2,660
320
Lowest
February
$ 2,960
370
March
$ 3,560
520
April
$ 4,460
670
May
$ 3,160
520
June
$ 5,760
720
Highest
Total Maintenance Costs
Total Machine Hours
Highest
$ 5,760
720
Lowest
$ 2,660
320
Difference
$ 3,100
400
Variable Cost Per Hour = 3100 / 400 =
$ 7.75
b.
Calculation of fixed cost components using the high-low method:
At Highest Level:
Total Maintenance Costs
$ 5,760
Total Machine Hours
720
Variable Cost Per Hour
$ 7.75
Total Variable cost = 720 * 7.75
$ 5,580.00
Fixed Cost = 5760 - 5580 =
$ 180.00
(Total Cost - Total Variable cost)
a.
Calculation of variable cost components using the high-low method:
Month
Total Maintenance Costs
Total Machine Hours
January
$ 2,660
320
Lowest
February
$ 2,960
370
March
$ 3,560
520
April
$ 4,460
670
May
$ 3,160
520
June
$ 5,760
720
Highest
Total Maintenance Costs
Total Machine Hours
Highest
$ 5,760
720
Lowest
$ 2,660
320
Difference
$ 3,100
400
Variable Cost Per Hour = 3100 / 400 =
$ 7.75
b.
Calculation of fixed cost components using the high-low method:
At Highest Level:
Total Maintenance Costs
$ 5,760
Total Machine Hours
720
Variable Cost Per Hour
$ 7.75
Total Variable cost = 720 * 7.75
$ 5,580.00
Fixed Cost = 5760 - 5580 =
$ 180.00
(Total Cost - Total Variable cost)
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