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 fixed cost? O $1,300 O $1,500 O $1,000 O $1,750

Solution

Variable cost per unit, v = (y₂ – y₁)/(x₂ – x₁)

Where,
y₂ = Total cost at highest level of activity = $ 4,000
y₁ = Total cost at lowest level of activity = $ 1,900
x₂ = Number of labor hours at highest level of activity = 9,000
x₁ = Number of labor hours at lowest level of activity = 2,000

v = ($ 4,000 - $ 1,900)/ (9,000 – 2,000)

   = $ 2,100/7,000 = $ 0.30

Total fixed cost = y₂ – vx₂

                     = $ 4,000 – ($ 9,000 x 0.30)

                     = $ 4,000 - $ 2,700

                       = $ 1,300

Hence option “$ 1,300” is correct answer.