(Appendix 5A) Electrical costs at one of Rome Corporation's factories are listed below:
Management believes that electrical cost is a mixed cost that depends on machine-hours.
-Using the high-low method,the estimate of the fixed component of electrical cost per month is closest to:
A) $822
B) $743
C) $38
D) $944

Question

(Appendix 5A) Electrical costs at one of Rome Corporation's factories are listed below:
  Management believes that electrical cost is a mixed cost that depends on machine-hours.
-Using the high-low method,the estimate of the fixed component of electrical cost per month is closest to:
A) $822 
B) $743 
C) $38 
D) $944

Quizplus · Accepted Answer

11ea7761_188d_2de5_81a5_a34415e38531_TB2580_00 Variable cost per unit = Change in cost ÷ Change in activity
= $203 ÷ 96 machine-hours
= $2.11 per machine hour
Total fixed cost = Total cost - Variable cost element
= $1,025 - ($2.11 per machine-hour × 468 machine-hours)
= $1,025 - $987
= $38

(Appendix 5A) Electrical Costs at One of Rome Corporation's Factories