19 August, 07:59

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

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Answers (1)
1. 19 August, 08:17
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a. \$550,000

Explanation:

The total maintenance cost at 22,000 machine hours is given as:

Total maintenance costs=22,000*33.40=\$734,800

The total maintenance cost at 25,000 machine hours is given as:

Total maintenance costs=25,000*30.40=\$760,000

Variable cost per unit=760,000-734,800/25,000-22,000

=\$8.4 per unit

Total costs=fixed costs+variable cost

734,800=fixed costs+8.4*22,000

Fixed cost=734,800-184,800=\$550,000

So the answer is a. \$550,000
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