Question

The following information is available for Alba Company's maintenance cost over the last four months. Month January February March April Maintenance Maintenance hours cost 150 $6,000 $5,100 2240 $8,100 210 $6,900 Use the high-low method to estimate both the fixed and variable component of its maintenance cost.

Answer 1

1.

Variable cost = (Cost at highest activity - Cost at lowest activity)/(Highest activity-Lowest activity)

= (8,100-5,100)/(240-120)

= 3000/120

= 25 per maintenance hour

Fixed cost = Total cost - Variable cost

= 8,100 - (240*25)

= 2100

Fixed cost = $2100

Variable cost = $25 per maintenance hour