Question

Question 1 Incorrect Mark 0.00 out of 3.00 P Flag question High-Low Method The highest and lowest levels of activity for the Felton Company were 58,000 direct labor hours and 42,000 direct labor hours, respectively. Maintenance costs were $420,000 at the 58,000-hour level and $380,000 at the 42,000-hour level. Compute the maintenance cost formula Total cost = $ 412,500 x +($ 3.75 x x direct labor hours) What cost might we expect at an operating level of 52,000 direct labor hours? $ 607,500 Check You have correctly selected O. Incorrect Marks for this submission: 0.00/3.00.

Answer 1

Ans.	*First of all, we need to calculate the variable cost per unit.
	Variable cost per unit = (Highest cost - Lowest cost) / (Highest activity - Lowest activity)
		($420,000 - $380,000) / (58,000 - 42,000)
		$40,000 / 16,000
		$2.50 per unit
	Now, we can calculate the fixed cost by using either highest activity or lowest activity.
	Fixed cost   =   Total cost - (Variable cost per unit * Activity)
	Highest	$420,000 - ($2.50 * 58,000)
		$420,000 - $145,000
		$275,000
	Lowest	$380,000 - ($2.50 * 42,000)
		$380,000 - $105,000
		$275,000
	So the fixed cost is   $275,000.
Ans. 1	Total cost    =    Fixed cost + (Variable cost per unit * Activity)
		$275,000 + ($2.50 * Direct labor hours)
Ans. 2	*Calculation of total cost at 52,000 direct labor hours :
	Total cost    =    Fixed cost + (Variable cost per unit * Activity)
		$275,000 + ($2.50 * 52,000)
		$275,000 + $130,000
		$405,000