Refer to Banff Company. What is the variable rate for the lease cost when using the high-low method?
A) $37.25
B) $38.18
C) $38.20
D) $61.50

Question

Quizplus · Accepted Answer

The high-low method involves selecting the highest and lowest points of data to calculate the variable cost per unit. Based on the data provided, the highest lease cost is $14,300 for 400 rental hours, and the lowest lease cost is $10,300 for 250 rental hours. Using the formula for variable cost per unit: (highest cost - lowest cost) / (highest rental hours - lowest rental hours), we get: 
($14,300 - $10,300) / (400 - 250) = $4,000 / 150 = $26.67 per rental hour. 
To calculate the total cost, we multiply the variable rate by the rental hours, and subtract it from the total cost. For example, for the month of May: 
Variable cost = $26.67 per rental hour x 301 rental hours = $8,017.67 
Total cost = $17,400 
Fixed cost = $17,400 - $8,017.67 = $9,382.33 
Therefore, the equation for total lease cost using the high-low method is: 
Total cost = $9,382.33 + ($38.20 per rental hour x rental hours). 
The variable rate for the lease cost using the high-low method is $38.20 per rental hour.