Hifi Company wants to develop a cost function for its maintenance costs to estimate such costs for the coming year. The following data are available: $$\begin{array} { | l | l | l | }
\hline \text { Manth } & \text { Machine Hours } & \begin{array} { l }
\text { Maintenance Costs } \
\text { Incurred }
\end{array} \
\hline \text { January } & \mathbf { 8 0 0 0 } & \$ \$ , 600 \
\hline \text { February } & 13000 & \$ 5,300 \
\hline \text { March } & 14000 & \$ 6,000 \
\hline \text { April } & 11000 & \$ 4,600 \
\hline
\end{array}$$ Using the high-low method, what is the cost function for maintenance costs?
A) $1,800 + $0.40 per machine hour
B) $300 + $0.40 per machine hour
C) $400 + $0.40 per machine hour
D) $200 + $0.40 per machine hour

Question

Hifi Company wants to develop a cost function for its maintenance costs to estimate such costs for the coming year. The following data are available: $$\begin{array} { | l | l | l | } 
\hline \text { Manth } & \text { Machine Hours } & \begin{array} { l } 
\text { Maintenance Costs } \
\text { Incurred }
\end{array} \
\hline \text { January } & \mathbf { 8 0 0 0 } & \$ \$ , 600 \
\hline \text { February } & 13000 & \$ 5,300 \
\hline \text { March } & 14000 & \$ 6,000 \
\hline \text { April } & 11000 & \$ 4,600 \
\hline
\end{array}$$ Using the high-low method, what is the cost function for maintenance costs?
A) $1,800 + $0.40 per machine hour
B) $300 + $0.40 per machine hour
C) $400 + $0.40 per machine hour
D) $200 + $0.40 per machine hour

Quizplus · Accepted Answer

The high-low method uses the highest and lowest activity levels to estimate the variable cost per unit and the fixed cost. The variable cost per machine hour is ($6,000 - $4,600) / (14,000 - 11,000) = $0.40. The fixed cost is calculated using one of the points, e.g., $6,000 = Fixed Cost + ($0.40 * 14,000), resulting in a fixed cost of $400.

Hifi Company Wants to Develop a Cost Function for Its