Pearson Electric Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year.$\begin{array}{llll}\text { Month } & \operatorname{Cost}(\mathrm{Y})&\operatorname{Hours}(\mathrm{H})\
\text { January } & \$ 7,300 & 260 \
\text { February } & \$ 9,125 & 730 \
\text { March } & \$ 7,540 & 410 \
\text { April } & \$ 7,485 & 330 \
\text { May } & \$ 9,460 & 980 \
\text { June } & \$ 9,030 & 705
\end{array}$What is the estimated total cost at an operating level of 1,180 hours, using the high-low method?
A) $10,060.
B) $10,145.
C) $10,015.
D) $10,805.

Question

Pearson Electric Company uses the high-low method to analyze mixed costs. The following information relates to the production data for the first six months of the year.$\begin{array}{llll}\text { Month } & \operatorname{Cost}(\mathrm{Y})&\operatorname{Hours}(\mathrm{H})\
\text { January } & \$  7,300 & 260 \
\text { February } & \$  9,125 & 730 \
\text { March } & \$  7,540 & 410 \
\text { April } & \$  7,485 & 330 \
\text { May } & \$  9,460 & 980 \
\text { June } & \$  9,030 & 705
\end{array}$What is the estimated total cost at an operating level of 1,180 hours, using the high-low method?
A) $10,060.
B) $10,145.
C) $10,015.
D) $10,805.

Quizplus · Accepted Answer

The high-low method calculates the variable cost per unit by dividing the difference between the highest and lowest costs by the difference between the highest and lowest activity levels. The fixed cost is then calculated by subtracting the variable cost per unit from the total cost at the high activity level.Using the high-low method, the variable cost per hour is calculated as follows:Variable cost per hour = (Highest cost - Lowest cost) / (Highest activity level - Lowest activity level)= ($9,460 - $7,300) / (980 hours - 260 hours)= $2,160 / 720 hours= $3 per hourThe fixed cost is calculated as follows:Fixed cost = Total cost at high activity level - (Variable cost per unit * High activity level)= $9,460 - ($3 per hour * 980 hours)= $9,460 - $2,940= $6,520Therefore, the estimated total cost at an operating level of 1,180 hours is calculated as follows:Total cost = Fixed cost + (Variable cost per unit * Activity level)= $6,520 + ($3 per hour * 1,180 hours)= $6,520 + $3,540= $10,060Therefore, the correct answer is A) $10,060.

Pearson Electric Company Uses the High-Low Method to Analyze Mixed