Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 23

For the following questions, circle the best response. Answers are at the end of this chapter.

Chamberlain Music Studios seeks your help in analyzing the cost behavior pattern of its utility costs. At an activity level of 7,000 direct labor hours, total utility costs were $16,800; at 5,000 hours, total utility costs were only $14,300. Using the high–low method, the estimated total utility costs at an activity level of 6,500 direct labor hours would be

a. $15,600.

b. $16,175.

c. $16,300.

d. $18,590.

e. none of the above.

Step 1 of 3

Variable cost:

Variable costs tend to vary in direct proportion to the volume of production. In other words, if volume of production increases, total variable cost also increases and vice versa, example- direct material, direct wages, power, royalties, small tools etc.

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On inputting values,