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5 November, 21:11

Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to determine Smithson's fixed costs per month. Round your final answer to the nearest dollar. Do not round interim calculations. Cost Machine Hours January $26,300 10,000 February 36,700 18,400 March 28,400 12,400 April 31,400 14,900 a.$23,662 b.$44,541 c.$13,919 d.$11,135

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  1. 5 November, 22:39
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    The correct answer is C.

    Explanation:

    Giving the following information:

    Cost - Machine Hours

    January: $26,300 - 10,000

    February: $36,700 - 18,400

    March: $28,400 - 12,400

    April: $31,400 - 14,900

    Using the high-low method, first, we need to calculate the variable cost per unit. We need to use the following formula:

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

    Variable cost per unit = (36,700 - 26,300) / (18,400 - 10,000)

    Variable cost per unit = $1.2381 per unit

    Now, we can calculate the fixed costs:

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

    Fixed costs = 36,700 - (1.2381*18,400) = 13,918.96 = $13,919

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

    Fixed costs = 26,300 - (1.2381*10,000) = $13,919
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