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The company observed that at 20,000 machine hours of activity, total maintenance costs averaged $10.50 per hour. When activity jumped to 24,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $9.75. On the basis of this information, the company's fixed maintenance costs were:

Sagot :

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Answer:

Total fixed cost element = $90000

Explanation:

To calculate the fixed maintenance cost, first we will use the high-low method to calculate the element of average variable maintenance cost per machine hour in the average total maintenance cost.

The value of highest activity = 24000 * 9.75 = $234000

The value of lowest activity = 20000 * 10.5 = $210000

Average VC per MH = (234000 - 210000) / (24000 - 20000)

Average VC per MH = $6 per machine hour

Total Average variable cost (24000 MH) = 6 * 24000 = $144000

Total fixed cost element = 234000 - 144000 = $90000

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