Chapter 6 Example: 1. During a recent six-month period, Wade Corporation had the

Question

Chapter 6 Example: 1. During a recent six-month period, Wade Corporation had the following monthly production volume and total monthly maintenance expense: Units Produced 21,000 15,000 30,000 27,000 35,000 25,000 Maintenance Expenses March April May June July August $140,000 112,000 184,000 172,000 208,000 160,000 Required: a. Using the high-low method to determine the variable portion and fixed portion of total cost. b. what should the total planned maintenance expenses be if Wade Corporation plans to produce 32,000 units in September?

Explanation / Answer

Statement showing computation of variable and fixed portion of total cost under high low method:

Step1: Computation of Variable Cost:

Variable cost =( total cost at highest level- total cost at lowest level)/(Units produced at high-unit produced at Low)

=( 208000-112000)/(35000-15000)=$4.8

Step2: Computation of Fixed cost:

Fixed cost= Total cost - Variable cost

at highest level => Fixed cost=208000-(35000X4.8)=208000-168000=$40000

Fixed cost= $ 40000/-

Step3: Planned maintanance expenditure in September:

Units to be produced in September: 32000

Varible cost= 32000X$4.8=$153,600/-

Fixed cost = 40000/-

Total planned maintanance expendirure= 193,600/-

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