Fromme's Frocks has the following machine hours and production costs for the last six months of last year:
$$\begin{array} { | l | r | r | }
\hline \text { Month } & \text { Machine Hours } & \text { Production Cost } \
\hline \text { July } & 15,000 & \$ 12,075 \
\hline \text { August } & 13,500 & 10,800 \
\hline \text { September } & 11,500 & 9,580 \
\hline \text { October } & 15,500 & 12,080 \
\hline \text { November } & 14,800 & 11,692 \
\hline \text { December } & 12,100 & 9,922 \
\hline
\end{array}$$
If Fromme expects to incur 14,000 machine hours in January,what will be the estimated total production cost using the high-low method?

A) $8,750.00.
B) $11,142.50.
C) $22,400.00.
D) $10,889.10.

Question

Fromme's Frocks has the following machine hours and production costs for the last six months of last year: 
$$\begin{array} { | l | r | r | } 
\hline \text { Month } & \text { Machine Hours } & \text { Production Cost } \
\hline \text { July } & 15,000 & \$ 12,075 \
\hline \text { August } & 13,500 & 10,800 \
\hline \text { September } & 11,500 & 9,580 \
\hline \text { October } & 15,500 & 12,080 \
\hline \text { November } & 14,800 & 11,692 \
\hline \text { December } & 12,100 & 9,922 \
\hline
\end{array}$$
If Fromme expects to incur 14,000 machine hours in January,what will be the estimated total production cost using the high-low method?

A) $8,750.00.
B) $11,142.50.
C) $22,400.00.
D) $10,889.10.

Quizplus · Accepted Answer

The high-low method uses the highest and lowest machine hours to estimate variable cost per hour and fixed costs. The highest machine hours are 15,500 (October) and the lowest are 11,500 (September). The variable cost per hour is calculated as (12,080 - 9,580) / (15,500 - 11,500) = $0.625. The fixed cost is then calculated using either the high or low point: 12,080 - (15,500 * 0.625) = $2,406.25. For 14,000 machine hours, the estimated cost is 2,406.25 + (14,000 * 0.625) = $11,142.50.

Fromme's Frocks Has the Following Machine Hours and Production Costs