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An entity has provided the following data for the first five months of the year Machine Lubrication Hours Costs January 720 $750 February 160 800 March 200 870 April 150 790 May 170 840 Using the high-low method, the estimated monthly fixed component of lubrication cost is closest to which of the following? Select one a: 5570 b5565 5550 5585
An entity has provided the following data for the first five months of the year Machine Lubrication Hours Costs January 720 $750 February 160 800 March 200 870 April 150 790 May 170 840 Using the high-low method, the estimated monthly fixed component of lubrication cost is closest to which of the following? Select one a: 5570 b5565 5550 5585
Expert Solution
| Machine Hours | Lubrication costs | |
| High level of activity [ March ] | 200 | 870 |
| (-) Low level of activity [ January ] | 120 | 750 |
| Difference | 80 | 120 |
| Difference in Lubrication costs | 120 |
| (/) Difference in Machine hours | 80 |
| Variable cost per machine hour | 1.5 |
| Now let us calculate fixed using the data of January | ||
| Total lubrication cost = Fixed cost + ( Variable cost per machine hour * Machine hours ) | ||
| 750 = Fixed cost + ( 1.5 * 120 ) | ||
| 750 = Fixed cost + 180 | ||
| Fixed cost = 750 - 180 = | 570 | Option a |
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