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: $$\begin{array} { | l | l | l | }
\hline \text { Manth } & \text { Machine Hours } & \begin{array} { l }
\text { Maintenance Costs } \
\text { Incurred }
\end{array} \
\hline \text { January } & \mathbf { 8 0 0 0 } & \mathbf { \$ 3 , 6 0 0 } \
\hline \text { February } & 13000 & \$ 5,300 \
\hline \text { March } & 14000 & \$ 6,000 \
\hline \text { April } & 11000 & \$ 4,600 \
\hline
\end{array}$$ Using the high-low method, what is the variable maintenance cost per machine hour?
A) $0.30
B) $0.40
C) $0.20
D) $2.50

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: $$\begin{array} { | l | l | l | } 
\hline \text { Manth } & \text { Machine Hours } & \begin{array} { l } 
\text { Maintenance Costs } \
\text { Incurred }
\end{array} \
\hline \text { January } & \mathbf { 8 0 0 0 } & \mathbf { \$ 3 , 6 0 0 } \
\hline \text { February } & 13000 & \$ 5,300 \
\hline \text { March } & 14000 & \$ 6,000 \
\hline \text { April } & 11000 & \$ 4,600 \
\hline
\end{array}$$ Using the high-low method, what is the variable maintenance cost per machine hour?
A) $0.30
B) $0.40
C) $0.20
D) $2.50

Quizplus · Accepted Answer

The high-low method involves taking the highest and lowest activity levels and their associated costs to determine the variable cost per unit. Here, the highest activity level is 14,000 hours with a cost of $6,000, and the lowest is 8,000 hours with a cost of $3,600. The difference in cost ($6,000 - $3,600 = $2,400) divided by the difference in hours (14,000 - 8,000 = 6,000 hours) results in a variable cost of $0.40 per machine hour.

Hifi Company Wants to Develop a Cost Function for Its