Answer the following questions using the information below:
For Echuca Company,labour-hours are 50 000 and wages $188 000 at the high point of the relevant range,and labour-hours are 30 000 and wages $140 000 at the low point of the relevant range.
-What is the constant?
A)$68 000
B)$20 000
C)$167 000
D)$48 000

Question

Quizplus · Accepted Answer

The constant can be found by calculating the fixed component of the wages. Using the high-low method, we first find the variable rate per labour-hour by dividing the change in wages by the change in labour-hours between the high and low points. Change in wages = $188,000 - $140,000 = $48,000. Change in labour-hours = 50,000 - 30,000 = 20,000. Variable rate per labour-hour = $48,000 / 20,000 = $2.40. Then, to find the constant (fixed component), we can use either the high point or the low point. Using the high point: Total wages = Variable component + Fixed component. $188,000 = ($2.40 * 50,000) + Fixed component. $188,000 = $120,000 + Fixed component. Fixed component = $188,000 - $120,000 = $68,000.

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