Larker Brothers, Inc., used the high-low method to derive its cost formula for electrical power cost. According to the cost formula, the variable cost per unit of activity is $4 per machine-hour. Total electrical power cost at the high level of activity was $19,200 and at the low level of activity was $18,400. If the high level of activity was 3,300 machine hours, then the low level of activity was:

3,100 machine hours

Explanation:

Given that,

Variable cost per unit of activity = $4 per machine-hour

Total electrical power cost:

High level of activity = $19,200

Low level of activity = $18,400

High level of activity = 3,300 machine hours

Let x be the low level of activity,

Variable cost = Change in cost : Change in activity

Variable cost = (High level of activity cost - Low level of activity cost) : Change in activity

4 = ($19,200 - $18,400) : (3,300 - x)

4 = 800 : (3,300 - x)

4 (3,300 - x) = 800

13,200 - 4x = 800

4x = 13,200 - 800

= 12,400 : 4

x = 3,100

Therefore, the low level of activity was 3,100 machine hours.