Maintenance costs at a Tierce Corporation factory are listed below: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to:

Question

Maintenance costs at a Tierce Corporation factory are listed below:  Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to:

Quizplus · Accepted Answer

Using the high-low method, we need to identify the highest and lowest levels of machine-hours and their corresponding maintenance costs.

The data in the table above shows that the highest level of machine-hours is 8,500 with a corresponding maintenance cost of $87,076. The lowest level of machine-hours is 5,000 with a corresponding maintenance cost of $64,076.

To find the variable cost per machine-hour, we need to calculate the difference in maintenance cost between the highest and lowest levels of machine-hours, divided by the difference in machine-hours:

($87,076 - $64,076) / (8,500 - 5,000) = $23,000 / 3,500 = $6.57 per machine-hour.

To find the fixed cost component, we can use either the highest or lowest level of machine-hours and the corresponding maintenance cost. Let's use the highest level for this calculation:

Total cost = variable cost per machine-hour x machine-hours + fixed cost
$87,076 = $6.57 x 8,500 + fixed cost
Fixed cost = $19,076

Therefore, the estimated variable cost per machine-hour is $6.57, and the estimated fixed cost is $19,076.

The closest option is (B): $9.27 per machine-hour; $19,076 per month, so that is the answer.

Maintenance Costs at a Tierce Corporation Factory Are Listed Below