At the high level of activity in November, 7,000 machine hours were run and powe

Question

At the high level of activity in November, 7,000 machine hours were run and power costs were $16,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $8,000. Using the high-low method, the estimated fixed cost element of power costs is ? At the high level of activity in November, 7,000 machine hours were run and power costs were $16,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $8,000. Using the high-low method, the estimated fixed cost element of power costs is ?

Explanation / Answer

1 Machine Hours Power Cost High Level 7000 16000 Low Level 2000 8000 Use of High Level Method: Difference of Activity Level(MH) 5000 Difference of Power Cost 8000 Variable Cost Per Machine Hour: Difference of Power Cost/Difference of Activity Level(MH) 8000/5000 1.60 Per MH Total Cost Variable Cost Fixed Cost High Level 16000 11200 4800 (7000*1.60) (Total Cost-Variable Cost) Low Level 8000 3200 4800 (2000*1.60) (Total Cost-Variable Cost)

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