Battle Company which uses the high-low method to analyze cost behavior, has dete

Question

Battle Company which uses the high-low method to analyze cost behavior, has determined that machine hours best predict the company's total utilities cost. The company's cost and machine hour usage data for the first six months of the year follow:

MONTH                        TOTAL COST                MACHINE HOURS

January                         $3,440                          1,090

February                       $3,720                          1,180

March                           $3,711                          1,060

April                             $3,780                          1,230

May                              $4,400                          1,350

June                             $4,414                          1,440

Requirements        

Using the high-low method, answer the following questions:

1.

What is the variable utilities cost per machine hour?

2.

What is the fixed cost of utilities each month?

Using the high-low method, answer the following questions:

1.

What is the variable utilities cost per machine hour?

2.

What is the fixed cost of utilities each month?

Explanation / Answer

1 Variable utilities cost per machine hour =(4414-3711)/(1440-1060)= 1.85 2 Fixed cost of utilities each month=4414-(1440*1.85)= 1750

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