Brona Company makes treadmills.The company controller wants to calculate the fixed and variable costs associated with the janitorial costs incurred in the factory.Data for the past four months were as follows:

Using the high-low method, calculate the fixed cost of the janitorial services.
A) $3,000
B) $6,000
C) $5,230
D) None of these are correct.

Question

Brona Company makes treadmills.The company controller wants to calculate the fixed and variable costs associated with the janitorial costs incurred in the factory.Data for the past four months were as follows: 
 
 Using the high-low method, calculate the fixed cost of the janitorial services.
A) $3,000 
B) $6,000 
C) $5,230 
D) None of these are correct.

Quizplus · Accepted Answer

Variable Rate = (High Point Cost - Low Point Cost) / (High Point Output - Low Point Output)
Variable rate = ($15,000 - $12,000) / (800 - 600) = $15
Fixed Cost = Total Cost at High Point-(Variable Rate × Output at High Point)
Fixed cost = $15,000 - ($15 × 800) = $3,000
OR
Fixed cost = $12,000 - ($15 × 600) = $3,000

Brona Company Makes Treadmills