Answer:
The Estimated variable cost per machine hour for utilities is $2.50
Explanation:
High low method segregates the variable cost and fixed from the total cost using highest activity data and lowest activity data.
According to given data
Month Machine hours Utility cost
January 900 $5,450
February 1,800 $6,900
March 2,400 $8,100
April 600 $3,600
Using formula of High Low method
Variable cost = ( Cost of Highest activity - Cost of lowest activity ) / ( Highest activity - Lowest activity )
Variable cost = ( $8,100 - $3,600 ) / ( 2,400 - 600 )
Variable cost = $4,500 / 1800
Variable cost = $2.5
Fixed Cost = $8,100 - ( 2,400 x 2.5 ) = $8,100 - $6,000 = $2,100
The estimated variable cost per machine hour for utilities using the high-low method is $2.50.
This is a costing method that segregates the variable cost and fixed from the total cost using highest activity data and lowest activity data.
Given data
Month Machine hours Utility cost
January 900 $5,450
February 1,800 $6,900
March 2,400 $8,100
April 600 $3,600
Note: We are using the formula of High Low method
= (Cost of Highest activity - Cost of lowest activity) / (Highest activity - Lowest activity)
Variable cost = ($8,100 - $3,600) / (2,400 - 600)
Variable cost = $4,500 / 1800
Variable cost = $2.5.
In conclusion, the estimated variable cost per machine hour for utilities using the high-low method is $2.50.
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