At an activity level of 8,300 machine-hours in a month, Baudry Corporation's total variable maintenance cost is $220,448 and its total fixed maintenance cost is $556,764. What would be the average fixed maintenance cost per unit at an activity level of 8,600 machine-hours in a month? Assume that this level of activity is within the relevant range.
A)$93.64
B)$67.08
C)$64.74
D)$75.15

Question

Quizplus · Accepted Answer

Using the high-low method, we can determine the variable cost per unit:
Variable maintenance cost = Highest activity cost - Lowest activity cost / Highest activity level - Lowest activity level
$220,448 = (VC × 8,300) + $556,764
VC = $20.97 per machine-hour

Therefore, at 8,600 machine-hours in a month:
Fixed maintenance cost = Total maintenance cost - Variable maintenance cost
Fixed maintenance cost = $556,764 − (8,600 × $20.97) = $372,050
Average fixed maintenance cost per unit = Fixed maintenance cost / Activity level
Average fixed maintenance cost per unit = $372,050 / 8,600 = $43.26

Finally, we can determine the total cost per unit:
Total maintenance cost per unit = Variable maintenance cost per unit + Average fixed maintenance cost per unit
Total maintenance cost per unit = $20.97 + $43.26 = $64.74

Thus, the correct answer is (C) $64.74.

At an Activity Level of 8,300 Machine-Hours in a Month