Direct Maintenance LaborHours Cost Incurred 5000 February 40

Direct Maintenance Labor-Hours Cost Incurred 5,000 February 4,000 7,000 8,000 3,000 9,000 6,000 2,000 $2,900 2,500 3,200 3,400 2,100 4,000 3,100 1,900 January March ril May June July August Using the high-low method, what is the variable cost? O $2 per direct labor-hour O $2.31 per direct labor-hour 0 $.30 per direct labor-hour O $3.33 per direct labor-hour

Solution

Answer:

As per High-Low Method, Variable Cost = (y2 – y1) / (x2 – x1)

Total Cost at the Highest level of Activity (y2) = $4,000
Total Cost at the Lowest level of Activity (y1) = $1,900
Direct Labour Hours at Highest Level of Activity (x2) = 9,000 DLH
Direct Labour Hours at Lowest Level of Activity (x1) = 2,000 DLH

Variable Cost = (4,000 – 1,900) / (9,000 – 2,000)
Variable Cost = 2,100 / 7,000
Variable Cost = $0.30 per Direct Labor Hours

Therefore, Variable Cost per Direct Labor Hours is $0.30.