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svlad2
1 month ago
9

Song, Inc., uses the high-low method to analyze cost behavior. The company observed that at 22,000 machine hours of activity, to

tal maintenance costs averaged $33.40 per hour. When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40. On the basis of this information, the fixed cost was:
a. $550,000.
b. $734,800.
c. $760,000.
d. $184,800.
e. $210,000.
Business
1 answer:
Free_Kalibri [3.7K]1 month ago
8 0
a. $550,000. The total maintenance cost at 22,000 machine hours is calculated as follows: Total maintenance costs = 22,000*33.40 = $734,800. At 25,000 machine hours, the total maintenance cost is Total maintenance costs = 25,000*30.40 = $760,000. The variable cost per unit is determined by: 760,000 - 734,800 / 25,000 - 22,000 = $8.4 per unit. Total costs equal fixed costs plus variable costs. Therefore, 734,800 = fixed costs + 8.4*22,000. This gives fixed costs as 734,800 - 184,800 = $550,000.
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