Song, Inc., uses the high-low method to analyze cost behavior. The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour. When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40.
On the basis of this information, the variable cost per machine hour was:
A) $8.40.
B) $22.00.
C) $25.00.
D) $30.40.
E) $33.40.

Question

Quizplus · Accepted Answer

The variable cost per machine hour is the difference between the high and low total costs per machine hour, divided by the difference in activity levels. In this case, the variable cost per machine hour is ($33.40 - $30.40) / (25,000 - 22,000) = $8.40.

Song, Inc, Uses the High-Low Method to Analyze Cost Behavior