Machine Master,Inc.had the following data regarding monthly power costs:

Month Machine hours Power cost

Jan 300 $680

Feb 600 720

Mar 400 695

Apr 200 640

Assume that management expects 500 machine hours in May.Using the high-low method,calculate May's power cost using machine hours as the basis for prediction. A)$700 B)$705 C)$710 D)$1,320

Question

Machine Master,Inc.had the following data regarding monthly power costs:

Month	Machine hours	Power cost
Jan	300	$680
Feb	600	720
Mar	400	695
Apr	200	640

Assume that management expects 500 machine hours in May.Using the high-low method,calculate May's power cost using machine hours as the basis for prediction. A)$700 B)$705 C)$710 D)$1,320

Quizplus · Accepted Answer

The high-low method involves finding the variable cost per unit using the highest and lowest activity levels. The difference in cost between the highest and lowest activity levels is divided by the difference in machine hours to find the variable cost per unit. The fixed cost is then calculated by subtracting the total variable cost at either activity level from the total cost at that level. 1. Variable cost per machine hour = (Cost at highest activity level - Cost at lowest activity level) / (Highest activity level - Lowest activity level) = ($720 - $640) / (600 - 200) = $80 / 400 = $0.20 per machine hour.2. Fixed cost = Total cost - (Variable cost per unit * Number of units) = $720 - ($0.20 * 600) = $720 - $120 = $600.3. Predicted cost for May = Fixed cost + (Variable cost per machine hour * Expected machine hours) = $600 + ($0.20 * 500) = $600 + $100 = $700.