Maintenance costs at a Neller 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 Neller 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 select the highest and lowest levels of machine-hours and their corresponding maintenance costs. From the data provided, the highest level of machine-hours is 9,000 with a maintenance cost of $48,000, and the lowest level of machine-hours is 2,000 with a maintenance cost of $11,000.

The variable cost per machine-hour can be calculated as (highest cost - lowest cost) / (highest hours - lowest hours) = ($48,000 - $11,000) / (9,000 - 2,000) = $3.77.

To find the fixed cost, we can use either the highest or lowest level of activity and subtract the variable cost component. Using the highest level, the fixed cost would be $48,000 - ($3.77 × 9,000) = $15,648.

Therefore, the closest estimates for the variable and fixed components of maintenance cost would be $3.77 per machine-hour and $15,648 per month, respectively, which is option B.

Maintenance Costs at a Neller Corporation Factory Are Listed Below