Maintenance costs at Wilmington Manufacturing over the past six months are listed in the following table. Using the high-low method, what would the monthly fixed maintenance cost be?

Question

Maintenance costs at Wilmington Manufacturing over the past six months are listed in the following table.  Using the high-low method, what would the monthly fixed maintenance cost be?

Quizplus · Accepted Answer

To use the high-low method, we need to first identify the highest and lowest maintenance costs and corresponding production levels. Using the table given, we can identify the highest maintenance cost as $18,000 in December (with a production level of 7,200 units) and the lowest cost as $9,600 in May (with a production level of 4,800 units).

Next, we can plug these values into the high-low formula:

Variable cost per unit = (highest cost - lowest cost) / (highest production level - lowest production level)
Variable cost per unit = ($18,000 - $9,600) / (7,200 - 4,800) = $2.40

To find the monthly fixed cost, we can use either the high or low data point:

Fixed cost = highest cost - (variable cost per unit x highest production level)
Fixed cost = $18,000 - ($2.40 x 7,200)
Fixed cost = $18,000 - $17,280
Fixed cost = $720

Therefore, the monthly fixed maintenance cost using the high-low method is $720, which is closest to answer choice A: $1,200. However, this suggests that the given data may not be the best fit for the high-low method, as the fixed cost seems very low compared to the variable cost per unit.

Maintenance Costs at Wilmington Manufacturing Over the Past Six Months