Larker Brothers, Incorporated, used the high-low method to derive its cost formula for electrical power cost. According to the cost formula, the variable cost per unit of activity is $4 per machine-hour. Total electrical power cost at the high level of activity was $19,200 and at the low level of activity was $18,400. If the high level of activity was 3,300 machine hours, then the low level of activity was:
A) 3,100 machine hours
B) 3,200 machine hours
C) 3,000 machine hours
D) 2,900 machine hours

Question

Quizplus · Accepted Answer

The difference in total costs between the high and low activity levels is $19,200 - $18,400 = $800. Since the variable cost per unit of activity is $4 per machine-hour, the difference in machine hours between the high and low activity levels is $800 / $4 = 200 machine hours. Therefore, the low level of activity is 3,300 machine hours - 200 machine hours = 3,100 machine hours.

Larker Brothers, Incorporated, Used the High-Low Method to Derive Its