Wigley Inc. has provided the following data concerning its maintenance costs: Ma

Question

Wigley Inc. has provided the following data concerning its maintenance costs:
Machine-Hours Maintenance Cost
January........... 4743 36612
February......... 4833 37098
March............ 4756 36693
April............. 4796 36902
May............. 4744 36619
June............. 4750 36669
July............. 4772 36757
August......... 4759 36687
September... 4752 36646



Management believes that maintenance cost is a mixed cost that depends on machine-hours.
Required: Estimate the variable cost per machine-hour and the fixed cost per month using the high-low method. Show your work!

Explanation / Answer

                      Machine-Hours    Maintenance Cost
January                4743                  36,612   Low
February              4833                   37,098   High
March                 4756                  36,693
April                   4796                  36,902
May                     4744                  36,619
June                    4750                  36,669
July                     4772                  36,757
August                4759                  36,687
September          4752                  36,646

High                   4833                  37,098
Low                    4743                  36,612
Difference           90                    486

Variable cost Per Machine hour = 486 / 90 = 5.40

Fixed cost per month (January) = 36,612 - (4743 x 5.40)
                                                = 36,612 - 25,612 = 11,000
OR
Fixed cost per month (February) = 37,098 - (4833 x 5.40)
                                                = 37,098 - 26,098 = 11,000

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