Question

Sheridan Company’s high and low level of activity last year was 57000 units of product produced in May and 14000 units produced in November. Machine maintenance costs were $152800 in May and $49600 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 55000 units. $148000 $144000 $136800 $146400

Answer 1

Answer:

Total costs= $148,000

Explanation:

Giving the following information:

Sheridan Company’s high and low level of activity last year was 57000 units of product produced in May and 14000 units produced in November. Machine maintenance costs were $152800 in May and $49600 in November.

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ highest activity units - Lowest activity units)

Variable cost per unit= (152,800 - 49,600)/(57,000 - 14,000)= $2.4

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 152,800 - (2.4*57000)= 16,000

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 49,600 - (2.4*14,000)=  16,000

55,000 units:

Total costs= 55,000*2.4 + 16,000= $148,000