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.

Question

Quizplus · Accepted Answer

Using the high-low method, we need to identify the highest and lowest levels of activity and their related costs.

From the table, we can see that when the machine worked for 2,000 hours, the total electrical cost was $1,800. And when the machine worked for 1,000 hours, the total electrical cost was $1,200.

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

Variable cost per machine hour = (highest cost - lowest cost) / (highest activity level - lowest activity level)
Variable cost per machine hour = ($1,800 - $1,200) / (2,000 hours - 1,000 hours) 
Variable cost per machine hour = $600 / 1,000 hours 
Variable cost per machine hour = $0.60

Therefore, the best choice is C, $0.60 as Downing's variable electrical costs per machine hour.

Given the Following Costs and Activities for Downing Company Electrical