The Chambers Manufacturing Company recorded overhead costs of $16,345 at an acti

Question

The Chambers Manufacturing Company recorded overhead costs of $16,345 at an activity level of 5,050 machine hours and $9,953 at 2,350 machine hours. The records also indicated that overhead of $10,074 was incurred at 3,025 machine hours. What is the variable cost per machine hour using the high-low method to estimate the cost? (Round your final answer to 2 decimal places.)

$2.37.

$4.24.

$1.97.

$3.24.

The Chambers Manufacturing Company recorded overhead costs of $16,345 at an activity level of 5,050 machine hours and $9,953 at 2,350 machine hours. The records also indicated that overhead of $10,074 was incurred at 3,025 machine hours. What is the variable cost per machine hour using the high-low method to estimate the cost? (Round your final answer to 2 decimal places.)

Explanation / Answer

Variable cost per unit under high-low method is calculated using the formula,

(Total Cost at the highest level of activity –Total cost at the lowest level of activity)/ (No. of units at highest level of activity – No. of units at lowest level of activity)

Here, units means machine hours.

The highest level of activity is 5,050 machine hours with overhead cost of $16,345

The lowest level of activity is 2,350 machine hours with overhead cost of $9,953

Variable cost per unit = ($16,345 - $9,953)/ (5,050 – 2,350) = $6,392/2,700 = 2.37 (Rounded off to 2 decimals)

Hence the answer is $2.37

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