Question

Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to calculate Smithson's fixed costs per month.

	Cost	Machine Hours
January	$90,350	10,500
February	146,600	18,000
March	103,450	12,200
April	123,580	14,900

a.$19,700

b.$9,300

c.$37,100

d.$11,600

Answer 1

High low method =

(costs @ high no. of units - costs @ low no. of units) / (units @ high level - units at low level)

= ($146,600 - $90,350) / (18000 - 10,500)

Variable cost = $7.50 per unit

Fixed cost per month = $146,600 - (18,000 * 7,.50)

Fixed cost per month = $11,600