13. Atlanta, Inc, which uses the high-low method to analyze cost behavior, has d

Question

13. Atlanta, 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 800 720 810 January $8,700 February 8,360 March April May June 8,950 9,360 9,625 9,150 950 Using the high-low method, the utilities cost associated with 980 machine hours would be: A. $9,510. B. $9,660 C. $9,700. D. $9,790.

Explanation / Answer

Variable cost per machine hour = (9625-8360)/(950-720)= 5.5 Fixed cost = 9625-(950*5.5)= 4400 Utilities cost for 980 machine hours = 4400+(980*5.5)= 9790 Option D is correct

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