The Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. What is the total estimated cost for 3,500 machine hours using the high-low method to estimate the cost equation?
The high-low method of accounting is used to bifurcate the total cost into fixed cost and variable cost. The first step is to determine the variable cost per unit by considering the total cost at the higher level of activity and the total cost at a lower level of activity. The second step is to determine the fixed cost by reducing the variable cost from the total cost.
Answer and Explanation: 1
Correct answer: Option C) $12,180.
Under the high-low method:
- Variable cost per unit = (Total cost at the highest level of activity -...
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fromChapter 22 / Lesson 29
Understand the high-low method in accounting. Learn the formulas for the high-low method. Learn how to compute variable cost per unit, fixed cost, and cost model.