Electrical costs at one of Noyd Corporation's factories are listed below: Management believes that electrical cost is a mixed cost that depends on machine-hours.
-Using the high-low method, the estimate of the fixed component of electrical cost per month is closest to:
A) $9,266
B) $10,232
C) $10,244
D) $9,881

Question

Electrical costs at one of Noyd Corporation's factories are listed below:  Management believes that electrical cost is a mixed cost that depends on machine-hours.
-Using the high-low method, the estimate of the fixed component of electrical cost per month is closest to:
A) $9,266 
B) $10,232 
C) $10,244 
D) $9,881

Quizplus · Accepted Answer

The high-low method involves taking the highest and lowest activity levels and their corresponding costs to estimate the fixed cost. The fixed cost is calculated by subtracting the variable cost (determined by the change in cost divided by the change in activity) from the total cost at either the high or low activity level. Based on the given options, $9,266 is the closest estimate for the fixed component.

Electrical Costs at One of Noyd Corporation's Factories Are Listed