Management believes that maintenance cost is a mixed cost that depends on machine hours. Use the HIGH LOW method to estimate the variable and fixed components of this cost. Compute the variable component first and round the nearest whole cent. Compute the fixed component second and round off to the nearest whole dollar. These estimates would be closest to:

Question

Management believes that maintenance cost is a mixed cost that depends on machine hours. Use the HIGH LOW method to estimate the variable and fixed components of this cost. Compute the variable component first and round the nearest whole cent. Compute the fixed component second and round off to the nearest whole dollar. These estimates would be closest to:  

         Machine-Hours         Maintenance Cost

March           3,135             $48,340

April                3,095            $47,993

May                 3,133            $48,345

June              3,157             $48,548

July                 3,065            $47,733

August           3,076            $47,830

September    3,084             $47,880

October        3,125               $48,247

November     3,098            $48,014

Variable maintenance cost per hour =$9

Fixed maintenance cost =$ 20,581

Explanation:

Using the a high and low technique, total cost can be analyzed and separated into fixed and variable portion. This analysis helps in the forecast of cost and therefore important for the preparation of budget.

Variable cost per activity unit  

= (Cost at high activity - Cost at low activity)/ (high activity - low activity)

Fixed cost  = Total cost at high activity - (VC per act × high activity)

So, we can apply the above formula to the given data:

High         3,157             $48,548

Low          3,065            $47,733

Variable maintenance cost = ($48,548-  $47,733)/(3,157  - 3,065)

                                              = $9

Fixed maintenance cost = 48,548 - (8.86×3,157)= $ 20,581  

Variable maintenance cost per hour =$9

Fixed maintenance cost =$ 20,581

answer the law of increasing costs;

answerall of the above;