Q3SE Using the high-low method聽Mark ... [FREE SOLUTION]

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Chapter 20: Q3SE (page 1121)

Using the high-low method
Mark owns a machine shop. In reviewing the shop鈥檚 utility bills for the past 12 months, he found that the highest bill of $2,600 occurred in August when the machines worked 1,200 machine hours. The lowest utility bill of $2,300 occurred in December when the machines worked 600 machine hours.
Requirements
1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost.
2. Show the equation for determining the total utility cost for the machine shop.
3. If Mark anticipates using 800 machine hours in January, predict the shop鈥檚 total utility bill using the equation from Requirement 2.

Short Answer

Expert verified

1. Variable cost per units is $ 0.50 per machine hour

Total fixed cost is $2,000

2. $Total mixed cost = (Variable cost per units 脳 Number of units) + Total fixed cost$

3. Total mixed cost is $ 2,400

Step by step solution

Calculation of variable cost per machine hour and total fixed utility cost using high-low method.

$Variable cost per unit = \frac{Change in total cost}{Change in volume activity} = \frac{(Cost associated with hi gest volume - Cost associated with lowest volume)}{(Highest volume - Lowest volume)} = \frac{($ 2, 600 - $ 2, 300)}{(1200 - 600)} = \frac{($ 300)}{($ 600)} = $ 0.50 per machine hour$

$\begin{array}{rcl} Total fixed cost & = & Total mixed cost - Total variable cost \\ = & Total mixed cost - (Variable cost per unit 脳 Number of units) \\ = & $ 2, 600 - ($ 0.50 脳 1200) \\ = & $ 2, 600 - $ 6, 00 \\ = & $ 2, 000 \end{array}$

equation for determining the total utility cost for the machine shop.

$Total mixed cost = (Variable cost per unit 脳 Number of units) + Total fixed cost$

Calculation of shop’s total utility bill using equation in step 2.

$Total mixed cost = (Variable cost per unit 脳 Number per units) + Total fixed cost = ($ 0.50 脳 800 machine houre) + $ 2, 000 = $ 400 + $ 2, 000 = $ 2, 400$

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Short Answer

Step by step solution

Calculation of variable cost per machine hour and total fixed utility cost using high-low method.

equation for determining the total utility cost for the machine shop.

Calculation of shop’s total utility bill using equation in step 2.

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