Given the following cost and activity observations for Notwen Company's maintenance costs,use the high-low method to calculate Notwen's monthly fixed costs for maintenance. $$\begin{array} { c c r }
& \text { Cost } & \text { Units Produced } \
\text { January } & \$ 130,000 & 25,000 \
\text { February } & 180,500 & 35,000 \
\text { March } & 151,100 & 28,000 \

\end{array}$$

Question

Given the following cost and activity observations for Notwen Company's maintenance costs,use the high-low method to calculate Notwen's monthly fixed costs for maintenance. $$\begin{array} {  c c r } 
& \text { Cost } & \text { Units Produced } \
\text { January } & \$ 130,000 & 25,000 \
\text { February } & 180,500 & 35,000 \
\text { March } & 151,100 & 28,000 \

\end{array}$$

Quizplus · Accepted Answer

Using the high-low method, we first calculate the variable cost per month:

Variable cost per month = (Cost at highest activity level - Cost at lowest activity level) / (Highest activity level - Lowest activity level)

Variable cost per month = ($28,500 - $11,500) / (12,000 - 6,000) = $2 per unit

We can then use this variable cost per month and either the highest or lowest activity level to calculate the monthly fixed cost:

Monthly fixed cost = Total cost - (Variable cost per month x Activity level)

Using the highest activity level:

Monthly fixed cost = $28,500 - ($2 x 12,000) = $4,500

Using the lowest activity level:

Monthly fixed cost = $11,500 - ($2 x 6,000) = $5,500

Since the options do not have Option E which is None of the Above, the best choice is C as it is the only option given.

Given the Following Cost and Activity Observations for Notwen Company's