The Wiscow Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours.The records also indicated that overhead of $9,730 was incurred at 2,600 machine hours.What is the total estimated cost for 2,600 machine hours using the high-low method to estimate the cost equation?

Question

Quizplus · Accepted Answer

Using the high-low method, we can first find the variable cost per machine hour:
Variable cost per machine hour = (High cost - Low cost) / (High activity level - Low activity level)
Variable cost per machine hour = ($14,182 - $8,748) / (4,200 - 2,300) = $2.717 per machine hour

Next, we can use either the high or low cost data point to find the fixed cost component of the equation.
Let's use the high cost data point:
Total cost = Fixed Cost + (Variable Cost per machine hour * Activity level)
$14,182 = Fixed Cost + ($2.717 * 4,200)
Fixed Cost = $14,182 - ($2.717 * 4,200) = $2,626.6

Now we can use the estimated cost equation to find the total estimated cost for 2,600 machine hours:
Total Cost = $2,626.6 + ($2.717 * 2,600) = $9,606.2
Therefore, the best choice is B.

The Wiscow Manufacturing Company Recorded Overhead Costs of $14,182 at an Activity