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The following information is available for a company's maintenance cost over the last seven...

Question:

The following information is available for a company's maintenance cost over the last seven months.

Month Maintenance Hours Maintenance Cost
June 9 $5,450
July 18 6,900
August 12 5,100
September 15 6,000
October 21 6,900
November 24 8,100
December 6 3,600

Using the high-low method, estimate both the fixed and variable components of its maintenance cost.

High-Low Method:

High-low method is one of the few methods used to separate the fixed and variable costs in a total cost (i.e., mixed cost). This is done by dividing the difference of highest and lowest cost by the difference of their respective activities.

Answer and Explanation:

  • a is the fixed cost
  • b is the variable cost

First, identify the variable cost by using the high-low method formula

  • {eq}\displaystyle \text{b} = \frac...

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High-Low Method Accounting: Formula & Examples

from Introduction to Business: Homework Help Resource

Chapter 22 / Lesson 29
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