If the controller uses the high-low method to estimate costs,the variable cost per machine hour is:
A)$6.25
B)$6.90
C)$5.77
D)$11.70

Question

Quizplus · Accepted Answer

The high-low method involves taking the highest and lowest activity levels and their corresponding costs to estimate the variable cost per unit of activity. 
Let's assume the activity levels and costs provided.

Highest activity level: 3,500 machine hours (Cost: $24,500)
Lowest activity level: 2,500 machine hours (Cost: $17,500)

Using the high-low method formula: 
Variable cost per machine hour = (Highest cost - Lowest cost) / (Highest activity level - Lowest activity level)

Variable cost per machine hour = ($24,500 - $17,500) / (3,500 - 2,500) 
Variable cost per machine hour = $7,000 / 1,000 
Variable cost per machine hour = $7

Therefore, none of the answer options provided match with the calculation from the high-low method. However, the closest option is A) $6.25, which is a little lower than the calculated result.

If the Controller Uses the High-Low Method to Estimate Costs,the