Oaklis Company has provided the following data for maintenance cost: Maintenance

Question

Oaklis Company has provided the following data for maintenance cost:

Maintenance cost is a mixed cost with variable and fixed components. The fixed and variable components of maintenance cost are closest to which:

$29,400 per year plus $1.60 per machine hour

$32,160 per year plus $.625 per machine hour

$2,040 per year plus $.625 per machine hour

$2,040 per year plus $1.60 per machine hour

Prior Year Current Year   Machine hours 17,100        20,100          Maintenance cost $29,400        $34,200       

Explanation / Answer

Variable cost per unit=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

=(34200-29400)/(20100-17100)

=$1.6 per machine hour

Total fixed cost=34200-(1.6*20100)=$2040 per year.

Hence the correct option is $2,040 per year plus $1.60 per machine hour

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