Liva Company wants to develop a cost function for its maintenance costs to estimate such costs for the coming year. The following data are available: Direct Maintenance
Month Labour Hours Costs Incurred
January 4,000 $ 900
February 6,500 1,325
March 7,000 1,500
April 5,500 1,150
Using the high-low method, what is the variable maintenance cost per direct labour hour?
A)$1.00
B)$0.10
C)$0.20
D)$1.50

Question

Quizplus · Accepted Answer

Using the high-low method, we need to identify the highest and lowest data points and calculate the variable cost per unit based on the difference in costs and hours between these two points.

Highest data point: March, 7,000 labour hours, $1,500 maintenance cost
Lowest data point: January, 4,000 labour hours, $900 maintenance cost

Variable cost per direct labour hour = (Highest cost - Lowest cost)/(Highest labour hours - Lowest labour hours)

= ($1,500 - $900)/(7,000 - 4,000)

= $0.20

Therefore, the variable maintenance cost per direct labour hour is $0.20. The answer is C.

Liva Company Wants to Develop a Cost Function for Its