Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget. Examination of past records disclosed the following costs and volume measures:$\begin{array}{lrr}
& \text { Highest } & \text { Lowest } \
\text { Cost per month } & \$ 86,000 & \$ 74,000 \
\text { Machine hours } & 96,000 & 66,000
\end{array}$Using the high-low-point method of analysis, the estimated variable cost per machine hour is:
A) $0.40
B) $0.20
C) $0.90
D) $0.10
E) $0.70

Question

Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget. Examination of past records disclosed the following costs and volume measures:$\begin{array}{lrr} 
& \text { Highest } & \text { Lowest } \
\text { Cost per month } & \$ 86,000 & \$ 74,000 \
\text { Machine hours } & 96,000 & 66,000
\end{array}$Using the high-low-point method of analysis, the estimated variable cost per machine hour is:
A) $0.40
B) $0.20
C) $0.90
D) $0.10
E) $0.70

Quizplus · Accepted Answer

The variable cost per machine hour is calculated as the difference between the highest and lowest costs divided by the difference between the highest and lowest machine hours. In this case, the variable cost per machine hour is ($86,000 - $74,000) / (96,000 - 66,000) = $0.40.

Maintenance Expenses of a Company Are to Be Analyzed for Purposes