Bell Company has provided the following data for maintenance costs:
$\begin{array}{|l|r|r|}
\hline& \text { April } & \text { May } \
\hline \text { Machine Hours Incurred } & 12,000 & 16,000 \
\hline \text { Maintenance Cost Incurred } & \$ 24,000 & \$ 26,000 \
\hline
\end{array}$
Using the high-low method,what is the cost formula for maintenance cost?
A) $2.00 per machine hour.
B) $1.625 per machine hour.
C) $18,000 plus $0.50 per machine hour.
D) $24,000 plus $0.50 per machine hour.

Question

Bell Company has provided the following data for maintenance costs:
$\begin{array}{|l|r|r|} 
\hline& \text { April } & \text { May } \
\hline \text { Machine Hours Incurred } & 12,000 & 16,000 \
\hline \text { Maintenance Cost Incurred } & \$ 24,000 & \$ 26,000 \
\hline
\end{array}$
Using the high-low method,what is the cost formula for maintenance cost?
A) $2.00 per machine hour.
B) $1.625 per machine hour.
C) $18,000 plus $0.50 per machine hour.
D) $24,000 plus $0.50 per machine hour.

Quizplus · Accepted Answer

The high-low method calculates the variable cost per unit as the change in cost divided by the change in activity. Here, the change in cost is $2,000 ($26,000 - $24,000) and the change in machine hours is 4,000 (16,000 - 12,000), resulting in a variable cost of $0.50 per machine hour. The fixed cost is calculated by subtracting the total variable cost at either high or low activity level from the total cost, resulting in $18,000. Thus, the cost formula is $18,000 plus $0.50 per machine hour.

Bell Company Has Provided the Following Data for Maintenance Costs