Highland Rose Ltd is attempting to develop the cost function for repair costs. The following past data are available: $$\begin{array} { c c }
\underline{\text { Machine Hours }} &\underline{ \text { Repair Costs }} \
4,800 & \$ 6,385 \
3,400 & 4,585 \
4,000 & 5,285 \
5,900 & 7,085
\end{array}$$ Using the high-low method, what is the variable repair cost per machine hour?
A) $1.00
B) $0.15
C) $4.00
D) $5.00

Question

Highland Rose Ltd is attempting to develop the cost function for repair costs. The following past data are available: $$\begin{array} { c c } 
\underline{\text { Machine Hours }} &\underline{ \text { Repair Costs }} \
4,800 & \$ 6,385 \
3,400 & 4,585 \
4,000 & 5,285 \
5,900 & 7,085
\end{array}$$ Using the high-low method, what is the variable repair cost per machine hour?
A) $1.00
B) $0.15
C) $4.00
D) $5.00

Quizplus · Accepted Answer

The high-low method involves taking the highest and lowest activity levels and using them to calculate the variable cost per unit. The formula is: $$ \text{Variable Cost per Unit} = \frac{\text{Cost at Highest Activity Level} - \text{Cost at Lowest Activity Level}}{\text{Highest Activity Level} - \text{Lowest Activity Level}} $$Using the given data:- Highest activity level: 5,900 machine hours with repair costs of $7,085- Lowest activity level: 3,400 machine hours with repair costs of $4,585$$ \text{Variable Cost per Unit} = \frac{7,085 - 4,585}{5,900 - 3,400} = \frac{2,500}{2,500} = 1 $$Therefore, the variable repair cost per machine hour is $1.00.

Highland Rose Ltd Is Attempting to Develop the Cost Function