Wilson Corporation Wilson Corporation has the following data for use of its machinery
Refer to Wilson Corporation.Using the high-low method,compute the fixed cost element (to the nearest whole dollar).
A)$225
B)$138
C)$411
D)$364

Question

Wilson Corporation Wilson Corporation has the following data for use of its machinery
 Refer to Wilson Corporation.Using the high-low method,compute the fixed cost element (to the nearest whole dollar).
A)$225 
B)$138 
C)$411 
D)$364

Quizplus · Accepted Answer

Using the high-low method, we calculate the variable cost per hour as (total cost at highest activity level – total cost at lowest activity level) ÷ (highest activity level – lowest activity level)
= ($1,950 – $1,170) ÷ (70 – 40)
= $780 ÷ 30
= $26 per hour

We can then use the variable cost per hour to calculate the fixed cost element:

Total cost = Fixed cost + (Variable cost per hour x Activity level)
Substituting the values for the highest activity level:
$1,950 = Fixed cost + ($26 x 70)
Fixed cost = $1,950 – ($26 x 70)
Fixed cost = $1,170

Substituting the values for the lowest activity level:
$1,170 = Fixed cost + ($26 x 40)
Fixed cost = $1,170 – ($26 x 40)
Fixed cost = $1,170 – $1,040
Fixed cost = $130

To the nearest whole dollar, the fixed cost element is $138. Therefore, the correct answer is B, as it is the only option closest to $138.

Wilson Corporation Wilson Corporation Has the Following Data for Use