Question

Drop down boxes options and data table provided

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Tran Company, which uses the high-low method to analyze cost behavior, has determined that machine hours best predict the company's total utilities cost. The company's cost and machine hour usage data for the first six months of the year follow: E: (Click the icon to view the data.) X - Data Table 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 Tran Company uses 1,250 machine hours in a month, what will its total costs be? Options: Machine Hours Requirement 1. What is the variable utilities cost per machine hour? 1,070 1,100 Let's begin by determining the formula that is used to calculate the variable cost (slope). Total Cost 3,470 3,790 3,711 3.750 = Variable cost (slope) Month January ......$ February ......$ March .........$ April......... $ May..... June ........$ 1,060 Change in cost Change in volume Highest cost Highest volume Lowest cost Lowest volume Total operating cost Total variable cost (Round the variable cost to the nearest cent.) 4,900 1,260 1,320 1,440 Using the high-low method, the variable utilities cost per machine hour is $ D . 4.414 Requirement 2. What is the fixed cost of utilities each month? Print Done Let's begin by determining the formula that is used to calculate the fixed cost component = Fixed cost Using the high-low method, the fixed cost of utilities each month is $ Requirement 3. If Tran Company uses 1,250 machine hours in a month, what will its total costs be? (Round the variable cost per unit to two decimal places and round your total costs calculation to the nearest whole dollar.) The total costs when 1,250 machine hours are used is $

Answer 1

Solution 1:

Change in cost / change in volume = variable cost

= (4414 -3711) / (1440 -1060) = variable cost

= 703 / 380 = 1.85

Variable utility cost per machine hour = $1.85

Solution 2:

Total operating cost - total variable cost = Fixd cost

$4414 - (1.85*1440) = fixed cost

Fixed cost = $1750

Solution 3:

Total cost when 1250 machine hours used = $1750 + $1.85*1250 = $4063