Please solve the attached question and show method for solution. Happy, Inc., ha
ID: 2559676 • Letter: P
Question
Please solve the attached question and show method for solution.
Happy, Inc., has collected the following information on its cost of electricity: Machine HoursTotal Electricity Costs January February March April May June July August September October November December 520 540 350 460 680 710 330 540 260 740 860 600 $250 $290 $190 $210 $270 $350 $160 $250 $132 $330 $360 $330 Using the high-low method, compute the variable cost of electricity per machine hour. (Roun unit cost to 2 decimal places, e.g. 52.75.) Variable cost per machine hourExplanation / Answer
Answer:- High-Low Method:-
Variable Cost per Unit
Variable cost per unit (b) is calculated using the following formula:
Variable cost per unit=Y2-Y1/X2-X1
Where,
y2 is the total cost at highest level of activity;
y1 is the total cost at lowest level of activity;
x2 are the number of units/rooms/ labor ,machine hours etc. at highest level of activity; and
x1 are the number of units/rooms/ labor, machine hours etc. at lowest level of activity
The variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of machine hours).
Total Fixed Cost
Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:
Total Fixed Cost = y2 – b*x2 = y1 – b*x1
We have,
at highest activity: x2 = 860; y2 = $360
at lowest activity: x1 = 260; y1 = $132
Variable Cost of electricity per machine hour = ($360 $132) ÷ (860 260)
= $228/600 machine hour =$.38 per machine hour
Total variable cost =860 machine hour*$.38 per machine hour =$326.80
Variable cost per unit=Y2-Y1/X2-X1