Answer the following questions using the information below:
The Tamworth Company uses the high-low method to estimate the cost function.The information for 2018 is provided below:
$$\begin{array} { l c c }
& \text { Machine-hours } & \text { Labour Costs } \
\text { Highest observation of cost driver } & 800 & \$ 20000 \
\text { Lowest observation of cost driver } & 480 & \$ 13600
\end{array}$$
-What is the estimate of the total cost when 600 machine-hours are used?
A)$4000
B)$8000
C)$12 000
D)$16 000

Question

Answer the following questions using the information below:
The Tamworth Company uses the high-low method to estimate the cost function.The information for 2018 is provided below:
 $$\begin{array} { l c c } 
& \text { Machine-hours } & \text { Labour Costs } \
\text { Highest observation of cost driver } & 800 & \$ 20000 \
\text { Lowest observation of cost driver } & 480 & \$ 13600
\end{array}$$
-What is the estimate of the total cost when 600 machine-hours are used?
A)$4000
B)$8000
C)$12 000
D)$16 000

Quizplus · Accepted Answer

First, calculate the variable cost per machine-hour using the high-low method: $$ \frac{\$20,000 - \$13,600}{800 - 480} = \frac{\$6,400}{320} = \$20 \text{ per machine-hour}.$$ Then, calculate the fixed cost: $$ \text{Fixed Cost} = \text{Total Cost} - (\text{Variable Cost per Machine-Hour} \times \text{Machine-Hours}) $$ Using the highest observation: $$ \$20,000 = \text{Fixed Cost} + (\$20 \times 800) $$ $$ \text{Fixed Cost} = \$20,000 - \$16,000 = \$4,000. $$ Estimate of the total cost for 600 machine-hours: $$ \text{Total Cost} = \text{Fixed Cost} + (\text{Variable Cost per Machine-Hour} \times \text{Machine-Hours}) $$ $$ \text{Total Cost} = \$4,000 + (\$20 \times 600) = \$4,000 + \$12,000 = \$16,000. $$

Answer the Following Questions Using the Information Below: the Tamworth

Answer the Following Questions Using the Information Below:
the Tamworth