The following information is available for a company's utility cost for operating its machines over the last four months. $\begin{array} { | l | r | r | }
\hline \text { Month } & \text { Machine hours } & \text { Utility cost } \
\hline \text { January } & 900 & \$ 5,450 \
\hline \text { February } & 1,800 & \$ 6,900 \
\hline \text { March } & 2,400 & \$ 8,100 \
\hline \text { April } & 600 & \$ 3,600 \
\hline
\end{array}$
-
Using the high-low method, the estimated total fixed cost for utilities is:
A) $6,000.
B) $1,500.
C) $2,100.
D) $3,600.
E) $3,300.

Question

The following information is available for a company's utility cost for operating its machines over the last four months. $\begin{array} { | l | r | r | } 
\hline \text { Month } & \text { Machine hours } & \text { Utility cost } \
\hline \text { January } & 900 & \$ 5,450 \
\hline \text { February } & 1,800 & \$ 6,900 \
\hline \text { March } & 2,400 & \$ 8,100 \
\hline \text { April } & 600 & \$ 3,600 \
\hline
\end{array}$
-
Using the high-low method, the estimated total fixed cost for utilities is:
A) $6,000.
B) $1,500.
C) $2,100.
D) $3,600.
E) $3,300.

Quizplus · Accepted Answer

To use the high-low method, we need to identify the highest and lowest utility cost and the corresponding machine-hours.

Highest utility cost: $8,100 in March with 2,400 machine-hours 
Lowest utility cost: $600 in April with 600 machine-hours

Using this information, we can calculate the variable cost per machine-hour:

Variable cost per machine-hour = (highest cost - lowest cost) / (highest machine-hours - lowest machine-hours)
Variable cost per machine-hour = ($8,100 - $600) / (2,400 - 600)
Variable cost per machine-hour = $7

Then, we can use the variable cost per machine-hour to calculate the total fixed cost:

Total fixed cost = highest cost - (variable cost per machine-hour x highest machine-hours)
Total fixed cost = $8,100 - ($7 x 2,400)
Total fixed cost = $2,100

Therefore, the estimated total fixed cost for utilities is $2,100. Choice C is the correct answer.

The Following Information Is Available for a Company's Utility Cost