Questions 44 and 45 are based on the maintenance expenses of a company,which are to be analyzed for purposes of constructing a flexible budget.Examination of past records disclosed the following costs and volume measures:
Using the high-low technique,estimate the annual fixed cost for maintenance expenditures:
A)$447,360.
B)$240,000.
C)$230,400.
D)$384,000. Fixed cost = ($39,200 x 12 months)- (24,000 x 12x $0.80)= $240,000

Question

Questions 44 and 45 are based on the maintenance expenses of a company,which are to be analyzed for purposes of constructing a flexible budget.Examination of past records disclosed the following costs and volume measures: 
Using the high-low technique,estimate the annual fixed cost for maintenance expenditures:
A)$447,360. 
B)$240,000. 
C)$230,400. 
D)$384,000. Fixed cost = ($39,200 x 12 months)- (24,000 x 12x $0.80)= $240,000

Quizplus · Accepted Answer

The high-low method involves taking the highest and lowest volume measures and their respective costs to determine the variable cost per unit. In this case, the highest volume measure is 53,000 hours with a cost of $439,200, and the lowest volume measure is 38,000 hours with a cost of $319,200.

Variable cost per unit = (highest cost - lowest cost) / (highest volume - lowest volume)
Variable cost per unit = ($439,200 - $319,200) / (53,000 - 38,000)
Variable cost per unit = $4

To calculate the fixed cost, we can use the formula:
Fixed cost = total cost - (variable cost per unit x total volume)
Fixed cost = $758,400 - ($4 x 200,000)
Fixed cost = $240,000

Therefore, the best choice is B, with the explanation that we used the high-low method to calculate the variable cost per unit and then used the formula to calculate the fixed cost.

Questions 44 and 45 Are Based on the Maintenance Expenses