Question 1 The controller of Norton Industries has collected the following month

Question

Question 1 The controller of Norton Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs Total Maintenance Costs Total Machine Hours Month January February March April May June $2,930 3,230 3,830 4,730 3,430 5,840 350 400 550 640 550 750 Determine the variable cost components using the high-low method. (Round variable cost to 3 decimal places e.g. 12.250.) Variable cost per machine hour Determine the fixed cost components using the high-low method. (Round answer to 0 decimal places e.g. 2,520.) Total fixed costs

Explanation / Answer

Variable cost =

(Total cost of high activity – Total cost of low activity)/ (Highest activity units - Lowest activity units)

                     = ($ 5,840 - $ 2,930)/ (750 – 350)

                     = $ 2,910/ 400 = $ 7.275 per machine hour

Variable cost per machine hour is $ 7.275

We can input the value of variable cost in high or low cost to find out total fixed cost as:

Total cost = (Variable cost per machine hour x Total machine hours) + Total fixed cost

$ 2,930 = ($7.275 x 350) + Total fixed cost

Total fixed cost = $ 2,930 - ($7.275 x 350)

Total fixed cost = $ 2,930 - $ 2,546.25

                            = $ 383.75

Total fixed cost is $ 383.75

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