HIGH-LOW METHOD Kinser Company incurred the following high and low maintenance c

Question

HIGH-LOW METHOD
Kinser Company incurred the following high and low maintenance costs totals during 2017: $370,000 at 20,000 units of activity during March and $274,000 at 12,000 units during August.

Instructions: Answer 1 through 3 below, presenting carefully labeled supporting calculations in all cases.

1.   Use the high-low method to compute the variable cost per unit and the total fixed cost element of the mixed cost component.

2.   Based on the above analysis, express the total maintenance cost in formula format.

3.   Compute the total maintenance cost for June when activity is 16,000 units.

Explanation / Answer

1) Variable cost per unit = ($ 370000 - $ 274000) / (20000 units -12000 units)

= $ 12 per unit

variable cost at 20000 units = 20000 *12 = $ 240000

Total cost at 20000 units = 370000

Fixed Cost = 370000 - 240000 = $ 130000

2) Total Maintenance cost = Variable cost + Fixed cost = 240000 + 130000 = $370000

3) Variable cost at 16000 units = 16000 *12 = $ 192000

Fixed Cost = 130000

Total cost = $ 322000

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