Given the following costs and activities for Downing Company electrical costs, use the high-low method to calculate Downing's variable electrical costs per machine hour.
A) $2.08
B) $6.00
C) $0.60
D) $1.20

Question

Given the following costs and activities for Downing Company electrical costs, use the high-low method to calculate Downing's variable electrical costs per machine hour. 
A) $2.08 
B) $6.00 
C) $0.60 
D) $1.20

Quizplus · Accepted Answer

To use the high-low method, we need to identify the highest and lowest level of activity and the corresponding total costs. 
Based on the table provided, the highest level of activity is 25,000 machine hours in March, which incurred a total electrical cost of $16,000. 
The lowest level of activity is 10,000 machine hours in January, which incurred a total electrical cost of $10,000. 
Using the high-low method formula (change in cost ÷ change in activity), the variable cost per machine hour is:
($16,000 - $10,000) ÷ (25,000 - 10,000) = $6,000 ÷ 15,000 = $0.4 
Therefore, the variable electrical cost per machine hour is $0.60 (rounded to the nearest cent). 
Option C is the only choice that matches the calculated answer.

Given the Following Costs and Activities for Downing Company Electrical