Reference: 18_01
Willco Inc. manufactures electronic parts. They are analyzing their monthly maintenance costs to determine the best way to budget these costs in the future. They have collected the following data for the last six months:
$$\begin{array} { | l | c | c | }
\hline { \text { Month } } & \text { Machine Hours } & \text { Maintenance Costs } \
\hline \text { January } & 30,000 & \$ 62,000 \
\hline \text { February } & 40,000 & \$ 74,500 \
\hline \text { March } & 37,500 & \$ 65,900 \
\hline \text { April } & 39,000 & \$ 68,750 \
\hline \text { May } & 42,300 & \$ 74,000 \
\hline \text { June } & 35,000 & \$ 64,500 \
\hline
\end{array}$$
-Using the high-low method and the Willco data above,what is the approximate fixed cost component of the monthly maintenance costs?

Question

Reference: 18_01
Willco Inc. manufactures electronic parts. They are analyzing their monthly maintenance costs to determine the best way to budget these costs in the future. They have collected the following data for the last six months:
 $$\begin{array} { | l | c | c | } 
\hline  { \text { Month } } & \text { Machine Hours } & \text { Maintenance Costs } \
\hline \text { January } & 30,000 & \$ 62,000 \
\hline \text { February } & 40,000 & \$ 74,500 \
\hline \text { March } & 37,500 & \$ 65,900 \
\hline \text { April } & 39,000 & \$ 68,750 \
\hline \text { May } & 42,300 & \$ 74,000 \
\hline \text { June } & 35,000 & \$ 64,500 \
\hline
\end{array}$$
-Using the high-low method and the Willco data above,what is the approximate fixed cost component of the monthly maintenance costs?

Quizplus · Accepted Answer

The high-low method is used to estimate fixed and variable costs when there are only two data points. The fixed cost is the cost that does not change with the level of activity, while the variable cost is the cost that changes with the level of activity.To use the high-low method, we first need to find the highest and lowest levels of activity. In this case, the highest level of activity is 42,300 machine hours, and the lowest level of activity is 30,000 machine hours.Next, we need to find the difference between the highest and lowest levels of activity. In this case, the difference is 12,300 machine hours.Then, we need to find the difference between the highest and lowest maintenance costs. In this case, the difference is $12,500.Finally, we need to divide the difference in maintenance costs by the difference in activity levels. In this case, the result is $1.016.This means that for every additional machine hour, Willco Inc. can expect to pay $1.016 in maintenance costs.To find the fixed cost component of the monthly maintenance costs, we need to subtract the variable cost from the total maintenance costs. In this case, the variable cost is $1.016 per machine hour, and the total maintenance costs are $64,500.Therefore, the fixed cost component of the monthly maintenance costs is $64,500 - (1.016 * 35,000) = $32,715.

Reference: 18_01 Willco Inc -Using the High-Low Method and the Willco Data Above,what Is

Reference: 18_01
Willco Inc -Using the High-Low Method and the Willco Data Above,what Is