Buckeye Company has provided the following data for maintenance cost:
Using the high-low method,what is the cost formula for maintenance cost?
A) $7,000 per year plus $0.625 per machine hour.
B) $7,000 per year plus $1.60 per machine hour.
C) $21,625 per year plus $0.625 per machine hour.
D) $27,000 per year plus $1.60 per machine hour.FC = 31,000 - 15,000 * 1.60 = $7,000

Question

Buckeye Company has provided the following data for maintenance cost: 
Using the high-low method,what is the cost formula for maintenance cost?
A) $7,000 per year plus $0.625 per machine hour. 
B) $7,000 per year plus $1.60 per machine hour. 
C) $21,625 per year plus $0.625 per machine hour. 
D) $27,000 per year plus $1.60 per machine hour.FC = 31,000 - 15,000 * 1.60 = $7,000

Quizplus · Accepted Answer

Using the high-low method, the highest maintenance cost is $31,000 in October, and the lowest is $15,000 in June. The change in cost is $16,000 ($31,000 - $15,000) over 3,000 machine hours (10,000 - 7,000 hours). Therefore, the variable cost per machine hour is $5.33 ($16,000 ÷ 3,000 hours). The fixed cost can be calculated as follows: 
Fixed Cost = Highest Cost - (Variable Cost per unit x Highest Units) 
Fixed Cost = $31,000 - ($5.33 x 10,000) 
Fixed Cost = $7,000 
Thus, the cost formula for maintenance cost is: 
Maintenance Cost = $7,000 + ($1.60 x Machine Hours)

Buckeye Company Has Provided the Following Data for Maintenance Cost