Question

The following information is available for a company’s maintenance cost over the last seven months.

Month	Maintenance Hours			Maintenance Cost
June		9		$	3,950
July		18			5,750
August		12			4,550
September		15			5,150
October		21			6,350
November		24			6,950
December		6			3,350

Using the high-low method, estimate both the fixed and variable components of its maintenance cost.
  

High- Low method- Calculation of variable cost per maintenance hour

Answer 1

variable cost per hour using high low method = (high cost - low cost) / (high hours - low hours)

=> (6950-3350) / (24-6)

=>$200 per hour.

fixed cost :

consider december costs:

maintenance cost = fixed cost + variable cost

=>3,350 = fixed cost + ($200*6 hours)

=>3,350 -1200 = fixed cost

=>fixed cost = $2,150.