Maintenance costs at a Straiton Corporation factory are listed below: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Use the high-low method to estimate the variable and fixed components of this cost. Compute the variable component first and round off to the nearest whole cent. Compute the fixed component second and round off to the nearest whole dollar. These estimates would be closest to: (Round your intermediate calculations to 2 decimal places.)

Question

Maintenance costs at a Straiton Corporation factory are listed below:  Management believes that maintenance cost is a mixed cost that depends on machine-hours. Use the high-low method to estimate the variable and fixed components of this cost. Compute the variable component first and round off to the nearest whole cent. Compute the fixed component second and round off to the nearest whole dollar. These estimates would be closest to: (Round your intermediate calculations to 2 decimal places.)

Quizplus · Accepted Answer

Using the high-low method:

Highest maintenance cost: $71,840 at 6,800 machine-hours in August 
Lowest maintenance cost: $14,280 at 1,200 machine-hours in December

Variable cost per machine-hour:

= (highest maintenance cost - lowest maintenance cost) / (highest machine-hours - lowest machine-hours)

= ($71,840 - $14,280) / (6,800 - 1,200)

= $9.53 per machine-hour (rounded to the nearest cent)

Fixed cost:

= Total maintenance cost - (variable cost per machine-hour x total machine-hours)

= $259,000 - ($9.53 x 24,000)

= $19,801 (rounded to the nearest dollar)

Therefore, the closest estimates of the variable and fixed components of the maintenance cost are $9.53 per machine-hour and $19,801 per month, respectively. Option D is the best answer choice.

Maintenance Costs at a Straiton Corporation Factory Are Listed Below