Using the high-low method, compute the fixed element of Universal's monthly repair cost:

Question

Quizplus · Accepted Answer

To use the high-low method, we need to find the highest and lowest levels of activity and their corresponding costs.

From the data given, we can see that the highest activity level is 900 repair hours, with a cost of $9,000, and the lowest activity level is 600 repair hours, with a cost of $7,500.

Using these values, we can calculate the variable cost per repair hour:

Variable cost per repair hour = (Highest Cost - Lowest Cost) / (Highest Activity Level - Lowest Activity Level)
= ($9,000 - $7,500) / (900 - 600)
= $1.5 per repair hour

Now that we know the variable cost, we can use either the high or the low data point to calculate the fixed cost:

Fixed cost = Total Cost - (Variable Cost per Unit x Total Units)
= $9,000 - ($1.5 x 900)
= $6,750

Therefore, the fixed element of Universal's monthly repair cost is $6,750, closest to option B of $250.

Using the High-Low Method, Compute the Fixed Element of Universal's