Question

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 2240 $8,100 210 $6,900 Use the high-low method to estimate both the fixed and variable component of its maintenance cost.

Answer 1

Answer-1:

Variable cost per hour = (Highest maintaince cost - lowest maintenance cost / (Highest maintaince hr. - lowest maintenance hr.)

                                   = (8,100 - $5,100) / (240 - 120) = $3,000 / 120 = $25 per hour

Fixed cost = Highest maintaince cost - (Highest maintaince hr × Variable cost per hour)

                 = $8,100 - (240 × $25) = $8,100 - $6,000 = $2,100

Or

Fixed cost = Lowest maintaince cost - (Lowest maintaince hr × Variable cost per hour)

                 = $5,100 - (120 × $25) = $5,100 - $3,000 = $2,100

Answer-2:

a) is the profit area

b) is the loss area

c) is the Break even point

Answer-3:

INCOME STATEMENT Aleternative-1 Alternative-2 35000 35000 Sale units $ 20 $ 121 Sales price per unit Less: Variable cost per unit Contribution per unit Total contribution Less: Fixed cost Net income 20 121 8 280000 140000 140,000 420000 240000 180,000 $ $

Comment: Alternative-1 should be selected because it's net income is more as compared to alternative-2.