During the most productive month of the year for the Equipment Maintenance Dept.

Question

During the most productive month of the year for the Equipment Maintenance Dept. of Kason Inc, 2,100 machines were maintained at a total cost of $61,500.  In its slowest month, 750 machines were serviced at a total cost of $41,250.  Using the high-low method of cost estimation, what would be the estimated total cost to maintain 3,000 machines for the Equipment Maintenance Dept.?

During the most productive month of the year for the Equipment Maintenance Dept. of Kason Inc, 2,100 machines were maintained at a total cost of $61,500.  In its slowest month, 750 machines were serviced at a total cost of $41,250.  Using the high-low method of cost estimation, what would be the estimated total cost to maintain 3,000 machines for the Equipment Maintenance Dept.?

Explanation / Answer

Variable cost per unit=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

=(61500-412500)/(2100-750)=$15 per unit

Total fixed cost=61500-(15*2100)=$30000

Hence total cost at 3000 machines =Variable cost+Fixed cost

=(15*3000)+30000

=$75000.

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