Question

The Controller of MM Ears has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs:

Month	Total Maintenance costs	Total machine hours
January	$2800.00	3000
February	$3000.00	4000
March	$3600.00	6000
April	$5500.00	7900
May	$3200.00	5000
June	$5000.00	8000

Answer the following questions about the company.

a) What is the company's variable cost component? $ Answer per machine hour

b) What is company's fixed cost component? $ Answer

c) The variable and fixed cost component together form the cost equation. Use the resulting cost equation to calculate the company's total expected maintenance cost at the activity level of 5,000 machine hours. $ Answer

Answer 1

			MH'S	Cost
	High		8,000	5,000
	low		3,000	2,800
	Difference		5,000	2,200
a)	Variable cost componend
	2200/5000
	0.44	per machine hour
b)	Fixed cost component
	5,000 - (8000*.44)
	1480
c)	cost Equation
	Y           = a           + bx
	Y	=	1,480	+	.44x
	total cost	=	1480	+	2200
			3680