Question
Your company is considering an expansion and preparing budgets with and without the expanded activities. You have been asked to predict the cost of maintenance
Your company is considering an expansion and preparing budgets with and without the expanded activities. You have been asked to predict the cost of maintenance at several different activity levels. You believe machine hours is a good cost driver and you have gathered historical data from the last 6 accounting periods, as summarized in the following table: Total cost of maintenance Number of machine hours Period 1 63900 18600 Period 2 64270 22400 Period 3 53230 8600 Period 4 59890 17600 Period 5 59750 15900 Period 6 62250 19870 You choose to use the High-Low method of estimating the fixed and variable components of a mixed cost. 1. What is the variable cost per machine hour? (Round to the nearest penny) 2. What is the fixed cost per period for maintenance? (Round to the nearest dollar) 3. Use your results to predict the total cost of maintenance in period 7 if 44800 machine hours are expected.
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