The Chambers Manufacturing Company recorded overhead costs of $16,345 at an acti
ID: 2424878 • Letter: T
Question
The Chambers Manufacturing Company recorded overhead costs of $16,345 at an activity level of 5,050 machine hours and $9,953 at 2,350 machine hours. The records also indicated that overhead of $10,074 was incurred at 3,025 machine hours. What is the variable cost per machine hour using the high-low method to estimate the cost? (Round your final answer to 2 decimal places.)
$2.37.
$4.24.
$1.97.
$3.24.
The Chambers Manufacturing Company recorded overhead costs of $16,345 at an activity level of 5,050 machine hours and $9,953 at 2,350 machine hours. The records also indicated that overhead of $10,074 was incurred at 3,025 machine hours. What is the variable cost per machine hour using the high-low method to estimate the cost? (Round your final answer to 2 decimal places.)
Explanation / Answer
Variable cost per unit under high-low method is calculated using the formula,
(Total Cost at the highest level of activity –Total cost at the lowest level of activity)/ (No. of units at highest level of activity – No. of units at lowest level of activity)
Here, units means machine hours.
The highest level of activity is 5,050 machine hours with overhead cost of $16,345
The lowest level of activity is 2,350 machine hours with overhead cost of $9,953
Variable cost per unit = ($16,345 - $9,953)/ (5,050 – 2,350) = $6,392/2,700 = 2.37 (Rounded off to 2 decimals)
Hence the answer is $2.37