The maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget.Examination of past records disclosed the following costs and volume measures: Highest and Lowest: Cost per month $86,000 and $74,000;Machine hours 96,000 and 66,000.
Using the high-low-point method of analysis,the estimated variable cost per machine hour is:
A)$0.40
B)$0.20
C)$0.90
D)$0.10
E)$0.70

Question

Quizplus · Accepted Answer

The variable cost per machine hour is calculated by taking the difference in costs divided by the difference in machine hours: ($86,000 - $74,000) / (96,000 - 66,000) = $12,000 / 30,000 = $0.40 per machine hour.

The Maintenance Expenses of a Company Are to Be Analyzed