Cosby Company is attempting to develop the cost function for repair costs. The following past data are available: Machine Hours Repair Costs
4,800 $6,385
3,400 4,585
4,000 5,285
5,900 7,085
Using the high-low method, what is the fixed repair cost?
A)$1,185
B)$850
C)$475
D)$565

Question

Quizplus · Accepted Answer

The fixed repair cost is the cost that does not change with the level of activity. In this case, the fixed repair cost is $1,185. This is because the repair costs are $6,385 when the machine hours are 4,800 and $4,585 when the machine hours are 3,400. The difference between these two costs is $1,800, which is the variable repair cost. The fixed repair cost is then $6,385 - $1,800 = $1,185.

Cosby Company Is Attempting to Develop the Cost Function for Repair