Denver Manufacturing
Denver Manufacturing would like to do a better job budgeting for maintenance costs and, consequently, they have prepared a schedule showing maintenance costs and units produced for the past five months as follows:
$\begin{array}{lcc}
& \begin{array}{c}
\text { Number of } \
\text { units produced }
\end{array} & \begin{array}{c}
\text { Total } \
\text { maintenance costs }
\end{array} \
\hline \text { January } & 5400 & \$ 4800 \
\text { February } & 6600 & 5180 \
\text { March } & 4900 & 4500 \
\text { April } & 5600 & 4900 \
\text { May } & 6000 & 5490
\end{array}$
-Using the high/low method,what is the cost equation to predict total maintenance costs?
A) Y = $90 + $.90x
B) Y = $2540 + $.40x
C) Y = $1646 + $.5824x
D) Y = $2.50x - $11 320

Question

Denver Manufacturing
Denver Manufacturing would like to do a better job budgeting for maintenance costs and, consequently, they have prepared a schedule showing maintenance costs and units produced for the past five months as follows:
$\begin{array}{lcc} 
& \begin{array}{c}
\text { Number of } \
\text { units produced }
\end{array} & \begin{array}{c}
\text { Total } \
\text { maintenance costs }
\end{array} \
\hline \text { January } & 5400 & \$ 4800 \
\text { February } & 6600 & 5180 \
\text { March } & 4900 & 4500 \
\text { April } & 5600 & 4900 \
\text { May } & 6000 & 5490
\end{array}$ 
-Using the high/low method,what is the cost equation to predict total maintenance costs?
A) Y = $90 + $.90x
B) Y = $2540 + $.40x
C) Y = $1646 + $.5824x
D) Y = $2.50x - $11 320

Quizplus · Accepted Answer

The high/low method uses the highest and lowest activity levels to estimate variable and fixed costs. The variable cost per unit is calculated as (5180 - 4500) / (6600 - 4900) = 0.40. The fixed cost is then calculated using one of the data points, such as 5180 = 0.40(6600) + Fixed Cost, resulting in a fixed cost of $2540. Thus, the cost equation is Y = $2540 + $0.40x.

Denver Manufacturing Denver Manufacturing Would Like to Do a Better

Denver Manufacturing
Denver Manufacturing Would Like to Do a Better