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

Question

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. The variable cost per machine hour is calculated as the difference in costs divided by the difference in machine hours between the highest and lowest activity levels. Here, the highest activity level is 5,900 hours with costs of $7,085, and the lowest is 3,400 hours with costs of $4,585. The variable cost per machine hour = ($7,085 - $4,585) / (5,900 - 3,400) = $2,500 / 2,500 = $1.00.

Smith Company Is Attempting to Develop the Cost Function for Repair