Questions: Montel owns a machine shop. In reviewing the shop's utility bills for the past 12 months, he found that the highest bill of 2,800 occurred in August when the machines worked 1,400 machine hours. The lowest utility bill of 2,600 occurred in December when the machines worked 900 machine hours. Requirement 1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost. First, calculate the variable cost per machine hour. Select the formula labels, then enter the amounts and compute the variable cost per machine hour. (Use the high-low method. Round your answer to the nearest cent) Change in total costs / Change in volume of activity = Variable cost per machine hour

Montel owns a machine shop. In reviewing the shop's utility bills for the past 12 months, he found that the highest bill of 2,800 occurred in August when the machines worked 1,400 machine hours. The lowest utility bill of 2,600 occurred in December when the machines worked 900 machine hours.

Requirement 1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost.

First, calculate the variable cost per machine hour. Select the formula labels, then enter the amounts and compute the variable cost per machine hour. (Use the high-low method. Round your answer to the nearest cent)

Change in total costs / Change in volume of activity = Variable cost per machine hour

Transcript text: Montel owns a machine shop. In reviewing the shop's utility bills for the past 12 months, he found that the highest bill of $\$ 2,800$ occurred in August when the machines worked 1,400 machine hours. The lowest utility bill of $\$ 2,600$ occurred in December when the machines worked 900 machine hours. Read the requirements. Requirement 1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost. First, calculate the variable cost per machine hour. Select the formula labels, then enter the amounts and compute the variable cost per machine hour. (Use the high-low method. Round your answer to the nearest cent) Change in total costs * Change in volume of activity $=$ Variable cost per machine hour $\square$ $\div$ $\square$ $=$ $\square$

Solution

Solution Steps

To solve this problem using the high-low method, we need to follow these steps:

Identify the highest and lowest activity levels and their corresponding costs.
Calculate the change in cost and the change in activity level.
Divide the change in cost by the change in activity level to find the variable cost per machine hour.
Use the variable cost per machine hour to calculate the total fixed utility cost.

Solution Approach

Identify the highest and lowest activity levels and their corresponding costs.
Calculate the change in cost and the change in activity level.
Divide the change in cost by the change in activity level to find the variable cost per machine hour.
Use the variable cost per machine hour to calculate the total fixed utility cost.

Step 1: Identify the Highest and Lowest Costs

The highest utility bill is $ \$2800 $ for $ 1400 $ machine hours in August, and the lowest utility bill is $ \$2600 $ for $ 900 $ machine hours in December.

Step 2: Calculate the Change in Cost and Activity Level

The change in total costs is calculated as: \[ \Delta \text{Cost} = 2800 - 2600 = 200 \] The change in machine hours is: \[ \Delta \text{Hours} = 1400 - 900 = 500 \]

Step 3: Calculate the Variable Cost per Machine Hour

The variable cost per machine hour is given by: \[ \text{Variable Cost per Hour} = \frac{\Delta \text{Cost}}{\Delta \text{Hours}} = \frac{200}{500} = 0.4 \]

Step 4: Calculate the Total Fixed Utility Cost

Using the variable cost per machine hour, the total fixed utility cost can be calculated as: \[ \text{Total Fixed Cost} = \text{Highest Cost} - (\text{Variable Cost per Hour} \times \text{Highest Hours}) = 2800 - (0.4 \times 1400) = 2800 - 560 = 2240.0 \]