Smith Company, which uses the high-low method to analyze cost behavior, has dete

Question

Smith Company, which uses the high-low method to analyze cost behavior, has determined that machine hours best predict the company's total ubilities cost. The company's cost and machine hour usage data for the first six months of the year follow EEB (Click the icon to view the data.) Requirements Using the high-low method, answer the following questions 1. What is the variable utblities cost per machine hour? 2. What is the fixed cost of utilities each month? 3. If Smith Company uses 1.250 machine hours in a month, what will ts total costs be?

Explanation / Answer

high low method machine total hours cost High 1,430 4,294 low 1,030 3,574 difference 400 720 1) Variable utilities cost per machine hour 720/400 1.8 2) fixed cost of utilities 4294 - (1430*1.8) 1720 3) total cost fixed cost + variable cost 1720          + 1250*1.8 3970

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