Need help answering ACCT102.00K Managerial Accounting Jordan Miller&4/1/18 6:34
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ACCT102.00K Managerial Accounting Jordan Miller&4/1/18 6:34 PM Quiz Me: Quiz Me: 6.4 Use the high-low method to analyze cost behavior Submit Qula This Question: 1 pt 3 of 5 This Quiz: 5 pts possi Chen Company, which uses the high-low method to analyze cost behavior, has determined that machine hours best predict the company's total utities cost. The company's cost and machine hour usage data for the first sto months of the year follow EE (Click the icon to view the data) O Data Table Using the high-low method, answer the following questions 1. What is the variable utilities cost per machine hour? 2. What is the foxed cost of utilities each month? 3. If Chen Company uses 1,210 machine hours in a month, what will its total costs be? Month Total Cost Machine Hours Let's begin by determining the formula that is used to calculate the variable cost (slope) January 5 3450 1,080 Vanable cost (slope) February37101.130 $ 3,467 S3.730 Round the variable cost to the nearest cent.) Using the high-low method, the variable ubüties cost per machine hour is Requirement 2. What is the fixed cost of ufilities each month? Let's begin by determining the formula that is used to calculate the fixed cost component March April May June 1010 1,220 1350 1,460 S4,500 S 4.232 Fixed cost Print Done using the high-low method, the fixed cost or utilities each month is s L- equirement 3. Il Chen pa ny uses 1 210 machine hours in a month what wil its total costs be? rd the va able cost per unit to two decima places and The total costs when 1,210 machine hours are used iss Choose from any list or enter any number in the input fields and then continue to the next question und yourto al co s a a n ntot er eaeam ola Save for Later O Type here to searchExplanation / Answer
Solution:
Under high low method, the variable cost is calculated by finding out the total cost at high level and total cost at low level then the difference of total cost at high level and low level is divided by different in total activity at high and low level.
The month of highest Machine Hours = June = 1350 MHs
Lowest Machine Hours = March = 1010 MHs
Difference in highest and lowest level of activity = 1350 – 1010 = 340 MHs
Total Cost in June Month = $4,232
Total Cost in March month = $3,467
Difference in Total Cost at highest and lowest level = 4232 – 3467 = $765
Requirement 1 – Variable Cost
Variable Cost per machine hour = Difference in total cost / Different in activity
= $765 / 340
= $2.25 per machine hour
Required 2 --- Fixed Cost each month
Fixed Cost = Total Cost – Variable Cost
Putting the value of variable cost per machine hour in high activity level
Total Variable Cost at highest activity level = 1350 MHs x $2.25 = $3,037.50
Total Cost at highest activity level = $4,232
Fixed Cost = Total Cost $4,232 – Total Variable Cost $3,037.50 = $1,194.50
Requirement 3 --- Total Cost at 1210 machine hours
Total Cost = Total Variable Cost (1210*$2.25) + Fixed Cost $1194.50
= $2,722.50 + $1,194.50
= $3,917
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