Bell Company has provided the following data for maintenance costs: $$\begin{array} { | l | l | l | }
\hline & \text { April } & \text { May } \
\hline \text { Machine hours incurred } & 12,000 & 16,000 \
\hline \text { Maintenance cost incurred } & \$ 24,000 & \$ 26,000 \
\hline
\end{array}$$ Using the high-low method, the cost formula for maintenance cost is?
A)$1.625 per machine hour.
B)$24,000 plus $0.50 per machine hour.
C)$2.00 per machine hour.
D)$18,000 plus $0.50 per machine hour.

Question

Bell Company has provided the following data for maintenance costs: $$\begin{array} { | l | l | l | } 
\hline & \text { April } & \text { May } \
\hline \text { Machine hours incurred } & 12,000 & 16,000 \
\hline \text { Maintenance cost incurred } & \$ 24,000 & \$ 26,000 \
\hline
\end{array}$$ Using the high-low method, the cost formula for maintenance cost is?
A)$1.625 per machine hour.
B)$24,000 plus $0.50 per machine hour.
C)$2.00 per machine hour.
D)$18,000 plus $0.50 per machine hour.

Quizplus · Accepted Answer

The high-low method calculates the variable cost per unit as the change in cost divided by the change in activity. Here, the change in cost is $2,000 ($26,000 - $24,000) and the change in machine hours is 4,000 (16,000 - 12,000), giving a variable cost of $0.50 per machine hour. The fixed cost is calculated by subtracting the total variable cost at either high or low activity level from the total cost, resulting in $18,000. Thus, the cost formula is $18,000 plus $0.50 per machine hour.

Bell Company Has Provided the Following Data for Maintenance Costs