Bell Company has provided the following data for maintenance costs:
Using the high-low method,what is the cost formula for maintenance cost?
A) $2.00 per machine hour.
B) $1.625 per machine hour.
C) $18,000 plus $0.50 per machine hour.
D) $24,000 plus $0.50 per machine hour.FC = 26,000 - 16,000 * .5 = $18,000.

Question

Bell Company has provided the following data for maintenance costs: 
Using the high-low method,what is the cost formula for maintenance cost?
A) $2.00 per machine hour. 
B) $1.625 per machine hour. 
C) $18,000 plus $0.50 per machine hour. 
D) $24,000 plus $0.50 per machine hour.FC = 26,000 - 16,000 * .5 = $18,000.

Quizplus · Accepted Answer

Using the high-low method, the variable cost per machine hour is calculated as (cost at highest activity level - cost at lowest activity level) / (highest activity level - lowest activity level) which gives ($42,000 - $10,000) / (25,000 - 5,000) = $0.50 per machine hour. The fixed cost is calculated as total cost at a given activity level - variable cost per unit * activity level. Using the highest or lowest activity level, we can get the fixed cost as $26,000 - $0.50 * 25,000 = $24,000 or $16,000 - $0.50 * 5,000 = $13,000. Then, the cost formula can be written as FC + VC per unit * activity level, which gives $18,000 + $0.50 per machine hour. Therefore, the best choice(s) is C.

Bell Company Has Provided the Following Data for Maintenance Costs