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10 March, 20:21

Glascro Company manufactures skis. The management accountant wants to calculate the fixed and variable costs associated with the leasing of machinery. Data for the past four months were collected as follows: Month Lease cost Machine hours April $15,000 800 May 10,000 600 June 12,000 770 July 16,000 1,000 Using the high-low method, calculate the fixed cost of leasing. a.$2,500 b.$2,000 c.$1,500 d.$1,000

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  1. 10 March, 20:48
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    The correct answer is D.

    Explanation:

    Giving the following information:

    Month - Lease cost - Machine hours

    April: $15,000 - 800

    May: $10,000 - 600

    June: $12,000 - 770

    July: $16,000 - 1,000

    Using the high-low method, first, we need to determine the unitary variable cost. We need to use the following formula:

    Variable cost per unit = (Highest activity cost - Lowest activity cost) / (Highest activity units - Lowest activity units)

    Variable cost per unit = (16,000 - 10,000) / (1,000 - 600)

    Variable cost per unit = $15 per unit

    Now, we can calculate the fixed costs:

    Fixed costs = Highest activity cost - (Variable cost per unit * HAU)

    Fixed costs = 16,000 - (15*1,000)

    Fixed costs = $1,000

    Fixed costs = LAC - (Variable cost per unit * LAU)

    Fixed costs = 10,000 - (15*600)

    Fixed costs = $1,000
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