The Chambers Manufacturing Company recorded overhead costs of $14,282 at an activity level of 4,700 machine hours and $8,486 at 2,400 machine hours

Accounting Oct 20, 2020

The Chambers Manufacturing Company recorded overhead costs of $14,282 at an activity level of 4,700 machine hours and $8,486 at 2,400 machine hours. The records also indicated that overhead of $9,780 was incurred at 2,700 machine hours. What is the variable cost per machine hour using the high-low method to estimate the cost? (Round your final answer to 2 decimal places.)

Expert Solution

Computation of Variable cost per Machine Hour using High-Low Method:

Variable Cost per Machine Hour = [Total Cost at Highest Level-Total Cost at Lowest Level]/(Highest level-Lowest level)

=($14,282-$8,486)/(4,700-2,400)

= $5,796/2,300

Variable Cost per Machine Hour = $2.52 per machine hour

So,

Fixed Cost = $14,282-($2.52*4,700)

= $14,282-$11,844

Fixed Cost = $2,438

Total Cost Equation:

y = $2,438 + $2.52x

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