Comco,Inc.has accumulated the following data for the cost of maintenance on its machinery for the last four months: Assume that the relevant range includes all of the activity levels mentioned in this problem. Assuming Comco uses the high-low method of analysis,the fixed cost of maintenance would be estimated to be:
A)$14,500
B)$5,020
C)$13,000
D)$12,320

Question

Comco,Inc.has accumulated the following data for the cost of maintenance on its machinery for the last four months:  Assume that the relevant range includes all of the activity levels mentioned in this problem. Assuming Comco uses the high-low method of analysis,the fixed cost of maintenance would be estimated to be:
A)$14,500 
B)$5,020 
C)$13,000 
D)$12,320

Quizplus · Accepted Answer

Using the high-low method, we need to find the variable cost per unit and the fixed cost.

Variable cost per unit = (Total cost at high activity level - Total cost at low activity level) / (High activity level - Low activity level)

= ($21,150 - $8,400) / (9,000 - 6,000)

= $4.25

Using this equation:

Total cost = Fixed cost + (Variable cost per unit x Activity level)

We can rearrange to:

Fixed cost = Total cost - (Variable cost per unit x Activity level)

Using the high activity level, we get:

$21,150 = Fixed cost + ($4.25 x 9,000)

Fixed cost = $13,000

Therefore, the fixed cost of maintenance would be estimated to be $13,000.

Comco,IncHas Accumulated the Following Data for the Cost of Maintenance