Lake Louise Company makes treadmills. The company controller wants to calculate the fixed and variable costs associated with the janitorial costs incurred in the factory. Data for the past four months were collected. $\begin{array}{lrr}& \text { Janitorial } & \text { Machine } \
\text { Month } &\text { costs } & \text { hours }\
\text { September } & \$ 11,000 & 575 \
\text { October } & 11,400 & 610 \
\text { November } & 10,200 & 510 \
\text { December } & 10,725 & 550
\end{array}$
-Refer to the Figure.What would be Lake Louise Company's estimate of total janitorial cost at a level of 625 machine hours?
A)$4,080
B)$6,120
C)$7,500
D)$11,580

Question

Quizplus · Accepted Answer

To estimate the total janitorial cost at a level of 625 machine hours, we first need to determine the variable cost per machine hour and the fixed cost using the high-low method. The high-low method involves taking the highest and lowest activity levels and their corresponding costs to calculate the variable cost per unit. The highest level of activity is in October (610 hours) with costs of $11,400, and the lowest level of activity is in November (510 hours) with costs of $10,200. Variable cost per machine hour = (Change in cost) / (Change in machine hours) = ($11,400 - $10,200) / (610 - 510) = $1,200 / 100 = $12 per machine hour.To find the fixed cost, we use the total cost equation: Total Cost = (Variable Cost per Machine Hour * Number of Machine Hours) + Fixed Cost.Using one of the months to solve for fixed cost, let's use November's data:$10,200 = ($12 * 510) + Fixed Cost$10,200 = $6,120 + Fixed CostFixed Cost = $10,200 - $6,120 = $4,080.Now, to estimate the total janitorial cost at 625 machine hours:Total Cost = ($12 * 625) + $4,080 = $7,500 + $4,080 = $11,580.

Lake Louise Company Makes Treadmills -Refer to the Figure