Question

1. (10 Points) 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 $6,000 120 $5,100 240 $8,100 $6,900 Use the high-low method to estimate both the fixed and variable component of its maintenance cost.

Answer 1

Identifying the highest, lowest activities and costs at the respective activities. Xi=Lowest activity in the given data 240 hours (March) X2= Highest activity in the given data 120 hours (February) Yı=Cost at lowest activity (240 hours) in the given data $8,100 Y2= Cost at highest activity (120 hours) in the given data = $5,100 Working notel - Calculation of Variable Cost per hour using the following formula: Y2 Y1 Variable cost per unit = X2 X1 $8,100 $5,100 $3,000 Y2 Y1 $25 per hour Variable cost per hour X2 X1 240 hours 120 hours 120 hours Working note 2- Calculation of fixed cost (a) using the following formula Fixed cost 3 Yi-bХ (or) Ү? — bХ» (b Variable cost per unit) Fixed cost (a) = Y1 - bX = $8,100 (S25 x 240 hours) = S8,100 $6,000 = $2,100