Smith Company is attempting to develop the cost function for repair costs. The following past data are available: $$\begin{array} { c c }
\text { Machine Hours } & \text { Repair Costs } \
\hline 4,800 & \$ 6,385 \
3,400 & 4,585 \
4,000 & 5,285 \
5,900 & 7,085
\end{array}$$ Using the high-low method, what is the estimated repair cost for 4,500 machine hours?
A) $5,785
B) $5,585
C) $5,685
D) $5,985

Question

Smith Company is attempting to develop the cost function for repair costs. The following past data are available: $$\begin{array} { c c } 
\text { Machine Hours } & \text { Repair Costs } \
\hline 4,800 & \$ 6,385 \
3,400 & 4,585 \
4,000 & 5,285 \
5,900 & 7,085
\end{array}$$ Using the high-low method, what is the estimated repair cost for 4,500 machine hours?
A) $5,785
B) $5,585
C) $5,685
D) $5,985

Quizplus · Accepted Answer

The high-low method calculates the variable cost per machine hour as (7,085 - 4,585) / (5,900 - 3,400) = $1. The fixed cost is then calculated using one of the data points, e.g., 7,085 - (5,900 * 1) = $1,185. The estimated cost for 4,500 hours is 1,185 + (4,500 * 1) = $5,685.

Smith Company Is Attempting to Develop the Cost Function for Repair