Crusher Company has provided the following data for maintenance cost:

Prior Year Current Year

Machine hours 15,600 19,100

Maintenance cost $33,300 $37,850

Maintenance cost is a mixed cost with variable and fixed components.

Question:

What is the total amount of fixed maintenance cost per year?

Total Fixed Cost: $13,020

Explanation:

Fixed cost is calculated using high low method.

High low method seeks to find variable cost per hour / unit by dividing the difference of cost (total cost at two levels) with difference of activity level. Than variable cost is reduced from total cost to identify the fixed cost. Below is the calculation:

Current year cost: $ 37,850 Current year machine hours: 19,100

Prior year cost: $ 33,300 Prior year machine hours: 15,600

Variable cost per machine hour = Current year cost - Prior year cost

Current year machine hour - prior year machine hour

Variable cost per machine hour: 37,850 - 33,300 = $1.30 per machine hour

19,100 - 15,600

Variable cost current year: ($1.30 * 19,100) = $24,830

Variable cost prior year: ($1.30 * 15,600) = $20,280

Fixed cost: Total cost - variable cost

Fixed cost current year: 37,850 - 24,830 = $13,020

Fixed cost prior year: 33,300 - 20,280 = $13,020