Bennett Company’s high and low level of activity last year was 150,000 units produced in June and 50,000 units produced in January. Machine maintenance costs were $104,000 in June and $40,000 in January. Using the high-low method, estimated total maintenance cost for a month in which 100,000 units will be produced is

Total cost= $72,000

Explanation:

Giving the following information:

Bennett Company’s high and low level of activity last year was 150,000 units produced in June and 50,000 units produced in January. Machine maintenance costs were $104,000 in June and $40,000 in January.

We need to use the following formulas:

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

Variable cost per unit= (104,000 - 40,000) / (150,000 - 50,000)= $0.64 per unit

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

FC= 104,000 - (0.64*150,000)= 8,000

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

FC= 40,000 - (0.64*50,000)= 8,000

Now, we can calculate the cost of 100,000 units:

Total cost= o.64*100,000 + 8,000= $72,000

The total maintenance cost at 100,000 units is $72000

Explanation:

The formula for high and low method is given as:

Variable cost=Cost at highest level-Cost at lowest level/(Highest activity-lowest activity)

Variable cost=$104000-$40000/(150000-50000)

                     =$0.64

Total cost= fixed cost+variable cost *volume

Fixed cost can be deduced by substituting the total cost and volume at any of the two activity levels.

$104000=Fixed cost+(0.64*150000)

$104000=Fixed cost+$96000

Fixed cost=$104000-$96000

fixed cost=$8000

Hence total maintenance cost at 100000 units is calculated thus:

Total cost=$8000+(100000*0.64)

Total cost=$72000

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