Largo Company's highest and lowest monthly costs during the past year were $108,000 and $72,000,respectively.Activity levels were 5,000 hours and 3,000 hours,respectively.Determine Largo's cost formula.
A)Y=24.60(X)+ 36,000
B)Y=21.60(X)+ 0
C)Y=18(X)+ 18,000
D)unable to determine from the information given

Question

Quizplus · Accepted Answer

The cost formula can be determined using the high-low method. The variable cost per hour is ($108,000 - $72,000) / (5,000 - 3,000) = $18 per hour. The fixed cost can be calculated by taking the total cost at either the high or low activity level and subtracting the total variable cost at that level. Using the high activity level: $108,000 - ($18 * 5,000) = $18,000. Thus, the cost formula is Y = 18(X) + 18,000.

Largo Company's Highest and Lowest Monthly Costs During the Past