Question

At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is: Group of answer choices

Answer 1

y = $1.10x + $600

Step-by-step explanation:

Step 1 : Variable Cost calculation

Variable Cost = ($11,600 - $7,200) ÷ (10,000 - 6,000)

= $1.10

Step 2 : Fixed Cost calculation

Total cost = Variable Cost + Fixed Cost

hence,

Fixed Cost = Total Cost - Variable Cost

= $11,600 - (10,000 x $1.10)

= $600

Step 3 : Cost formula for maintenance

Total cost = Variable Cost + Fixed Cost

therefore,

y = $1.10x + $600

where,

y = Total cost

x = Activity level

Using the high-low method, the cost formula for maintenance is : y = $1.10x + $600