Gribble Company's high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $156,000 in May and $60,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45, 000 units. a. $120,000b. $117,000c. $135,000d. $144,000

Question

Ray Gentry

Business

10 June, 20:14

Gribble Company's high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $156,000 in May and $60,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45, 000 units. a. $120,000b. $117,000c. $135,000d. $144,000

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Makenzie Todd · Answer 1

A: $120,000

Explanation:

Using the High-Low method:

(Highest cost - lowest cost) / (highest unit - lowest unit)

(156000-60000) / (60000-20000) = 2.4

Fixed cost = highest cost - (variable cost per unit x highest units)

Fc = 156000 - (2.4 x 60000)

fc = 12000

expected cost = (variable cost per unit x units) + fc

(2.4 x 45000) + 12000 = $120000