Banff Company manufactures snowboards. The management accountant wants to calculate the fixed and variable costs associated with the leasing of machinery. Data for the past four months were collected. $\begin{array}{lrr}& & \text { Machine } \
\text { Month } &\text { Lease cost } & \text { hours }\
\text { April } & \$ 21,000 & 550 \
\text { May } & 16,500 & 420 \
\text { June } & 19,000 & 510 \
\text { July } & 22,230 & 570
\end{array}$
-Refer to the Figure.What would be the estimate of Banff Company's total lease cost at a level of 500 machine hours?
A)$16,464
B)$18,546
C)$19,556
D)$19,606

Question

Quizplus · Accepted Answer

To estimate the total lease cost at a level of 500 machine hours, we first need to determine the variable cost per machine hour and the fixed cost. We can use the high-low method with the data from the months with the highest and lowest machine hours (July and May, respectively) to find these costs.Variable Cost per Machine Hour = (Change in Cost) / (Change in Machine Hours)= ($22,230 - $16,500) / (570 - 420)= $5,730 / 150= $38.20 per machine hourFixed Cost = Total Cost - (Variable Cost per Machine Hour * Machine Hours)Using July's data:= $22,230 - ($38.20 * 570)= $22,230 - $21,774= $456Now, we can estimate the total lease cost at 500 machine hours:= Fixed Cost + (Variable Cost per Machine Hour * Machine Hours)= $456 + ($38.20 * 500)= $456 + $19,100= $19,556

Banff Company Manufactures Snowboards -Refer to the Figure