Reference: 06-07
Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations. $$\begin{array} { | l | l | l | }
\hline & \text { Machine Hours } & \text { Electrical Cost } \
\hline \text { August } & 1,000 & \$ 1,550 \
\hline \text { September } & 900 & 1,510 \
\hline \text { October } & 1,500 & 1,750 \
\hline \text { November } & 2,000 & 1,950 \
\hline \text { December } & 1,300 & 1,670 \
\hline
\end{array}$$
-Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is closest to?
A)$0.98.
B)$1.68.
C)$0.40.
D)$2.50.

Question

Reference: 06-07
Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations. $$\begin{array} { | l | l | l | } 
\hline & \text { Machine Hours } & \text { Electrical Cost } \
\hline \text { August } & 1,000 & \$ 1,550 \
\hline \text { September } & 900 & 1,510 \
\hline \text { October } & 1,500 & 1,750 \
\hline \text { November } & 2,000 & 1,950 \
\hline \text { December } & 1,300 & 1,670 \
\hline
\end{array}$$
-Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is closest to?
A)$0.98.
B)$1.68.
C)$0.40.
D)$2.50.

Quizplus · Accepted Answer

The high-low method involves taking the highest and lowest levels of activity and their corresponding costs to estimate the variable cost per unit. The formula is: $$ \text{Variable Cost per Unit} = \frac{\text{Cost at Highest Activity Level} - \text{Cost at Lowest Activity Level}}{\text{Highest Activity Level} - \text{Lowest Activity Level}} $$Using the data:- Highest activity level is in November (2,000 hours) with a cost of $1,950.- Lowest activity level is in September (900 hours) with a cost of $1,510.$$ \text{Variable Cost per Unit} = \frac{1,950 - 1,510}{2,000 - 900} = \frac{440}{1,100} = \$0.40 $$Therefore, the estimated variable cost per machine hour for electricity is closest to $0.40.

Reference: 06-07 Gargymal Company Would Like to Estimate the Variable

Reference: 06-07
Gargymal Company Would Like to Estimate the Variable