Hiss Corporation's activity for the last six months is as follows: Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is closest to:

Question

Hiss Corporation's activity for the last six months is as follows:  Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is closest to:

Quizplus · Accepted Answer

To use the high-low method of analysis, we need to identify the highest and lowest levels of activity and their corresponding costs. Looking at the activity levels and costs provided, we can see that the highest activity level is 480 machine hours in January with a corresponding cost of $390, while the lowest activity level is 320 machine hours in April with a corresponding cost of $275.

Using the high-low method, we can calculate the variable cost per machine hour as follows:

Variable cost per machine hour = (Highest cost - Lowest cost) / (Highest activity level - Lowest activity level)
Variable cost per machine hour = ($390 - $275) / (480 - 320)
Variable cost per machine hour = $115 / 160
Variable cost per machine hour = $0.71875

Rounding to the nearest cent, we get a variable cost per machine hour of $0.72, which is closest to answer choice B ($0.65).

Hiss Corporation's Activity for the Last Six Months Is as Follows