Question

Coughlin Company, which uses the high-low method to analyze cost behavior, has determined that machine hours best predict the company's total utlities cost. The company's cost and machine hour usage data for the first six months of the year follow (Click the icon to view the data.) Requirements Using the high-low method, answer the following questions: 1. What is the variable utilities cost per machine hour? 2. What is the fixed cost of utilities each month? 3. If Coughlin Company uses 1.230 machine hours in a month, what will its total costs be? Requirement 1. What is the variable utilities cost per matchine hour? Let's begin by determining the formula that is used to calculate the variable cost (slope) 1 = Variable cost (slope)

Answer 1

Solution 1:

Variable utilities cost per machine hour using high low method = (Cost at high level - Cost at low level) / (High level activity - Low level activity)

= ($4,200 - $3,500) / (1400 - 1000) = $1.75 per machine hour

Solution 2:

Fixed cost of utilities = $4,200 - (1400*$1.75) = $1,750

Solution 3:

Total cost at 1230 machine hours = Fixed costs + Variable costs = $1,750 + (1230*$1.75) = $3,903