Hot\'lanta, Inc., which uses the high-low method to analyze cost behavior, has d

Question

Hot'lanta, Inc., which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:

Month Utilities Machine Hours
  January $10,500           980          
  February 10,160           900          
  March 10,750           990          
  April 11,160           1,100          
  May 11,241           1,130          
  June 10,950           1,080          

The variable utilities cost per machine hour is:

Multiple Choice

$0.21.

an amount other than those listed above.

$4.20.

$3.70.

$4.70.

Using the high-low method, the utilities cost associated with 1,160 machine hours would be:

Multiple Choice

$11,292.

an amount other than those listed above.

$11,102.

$11,252.

$11,382.

Explanation / Answer

Variable cost per machine hour = Change in cost/change in machine hour

= (11241-10160)/(1130-900)

Variable cost per machine hour = 4.70 per machine hour

so answer is e) 4.70 per machine hour

Fixed cost = 11241-(1130*4.7) = 5930

Utilities cost on 1160 machine hour = (1160*4.70+5930) = 11382

so answer is e) $11382

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.