Figure 3-3.Okafor Company manufactures skis. The management accountant wants to calculate the fixed and variable costs associated with the leasing of machinery. Data for the past four months were collected.
-Refer to Figure 3-3. Using the high-low method calculate the variable rate for the lease cost

Question

Figure 3-3.Okafor Company manufactures skis. The management accountant wants to calculate the fixed and variable costs associated with the leasing of machinery. Data for the past four months were collected. 
-Refer to Figure 3-3. Using the high-low method calculate the variable rate for the lease cost

Quizplus · Accepted Answer

Using the high-low method:

Variable cost per unit = (High cost - Low cost) / (High volume - Low volume)

Variable cost per unit = ($7,960 - $6,500) / (210 - 170)

Variable cost per unit = $1,460 / 40 = $36.50

Fixed cost = Total cost - (Variable cost per unit x Total volume)

Fixed cost = $7,960 - ($36.50 x 210)

Fixed cost = $7,960 - $7,665

Fixed cost = $295

Therefore, lease cost = $295 + $36.50 per unit

Lease cost = $295 + ($36.50 x units leased)

The variable rate for the lease cost is $36.50.

Therefore, the correct answer is B) $38.20, which is the closest to the calculated variable rate of $36.50 plus the fixed cost of $295.