In the Gabbana Company, maintenance costs are a mixed cost. At the low level of

Question

In the Gabbana Company, maintenance costs are a mixed cost. At the low level of activity (160 direct labor hours), maintenance costs are $600. At the high level of activity (400 direct labor hours), maintenance costs are $1,100. Using the high-low method, what is the variable maintenance cost per unit and the total fixed maintenance cost?

Variable Cost Per Unit        Total Fixed Cost

a.    $3.75                                    $400

b.   $2.08                                     $500

c.      $2.75                                   $220

d.        $2.08                                $268

Explanation / Answer

variable maintenance cost per unit=($1,100-$600)/(400-160)=$500/240=$2.08

total fixed maintenance cost=$1,100-$2.08*400=$1,100-$832=$268

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