Question

Question 5 --/1 View Policies Current Attempt in Progress Waterway Industries's high and low level of activity last year was 65000 units of product produced in May and 10000 units produced in November. Machine maintenance costs were $212000 in May and $47000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 48000 units. O $156750 O $195000 O $182250 O $161000

Answer 1

Variable Cost per unit using High Low Method
    = (High Activity Mantinance Cost - Low Activity Mantinance Cost) / (High Activity Units - Low Activity Units)
    = ($212,000 - $ $47,000) / (65000 - 10000)
    = $165,000 / 55000
    = $3 per unit

For 10000 units

Total Cost = Fixed Cost + Variable Cost
$47,000 = Fixed Cost + $3 x 10000
$47000 - $30,000 = Fixed Cost

Fixed Cost = $17,000

for 48000 units Machine Mantinance Cost

       = Fixed Cost + Variable Cost
       = $17,000 + ($3 x 48000)
       = $161,000

Hence, $161000 is right Answer