The 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:
Using the high-low-point method of analysis,the estimated variable cost per machine hour is:
A)$1.25.
B)$12.50.
C)$0.80.
D)$0.08. Unit variable cost = ($39,200 - $32,000)/(24,000 - 15,000)= $0.80

Question

The 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: 
Using the high-low-point method of analysis,the estimated variable cost per machine hour is:
A)$1.25. 
B)$12.50. 
C)$0.80. 
D)$0.08. Unit variable cost = ($39,200 - $32,000)/(24,000 - 15,000)= $0.80

Quizplus · Accepted Answer

The high-low-point method is used to determine the variable cost per unit or measure based on the highest and lowest levels of activity. In this case, the highest level of activity is 24,000 machine hours, and the lowest level is 15,000 machine hours. By subtracting the total costs at the lowest level from the total costs at the highest level and then dividing by the difference in activity levels, we can calculate the variable cost per machine hour. The result is $0.80 per machine hour. Therefore, the best choice is C.

The Maintenance Expenses of a Company Are to Be Analyzed