### Understanding the High-Low Method for Estimating Maintenance CostsThe following data reflects a company's maintenance costs over the last seven months. This information helps us apply the high-low method to estimate both the fixed and variable cost components.#### Monthly Data:| Month | Units Produced | Maintenance Cost ||------------|----------------|------------------|| June | 90 | $4,590 || July | 180 | $7,110 || August | 120 | $5,430 || September | 150 | $6,270 || October | 210 | $7,950 || November | 240 | $8,790 || December | 60 | $3,750 |#### High-Low Method CalculationThe high-low method helps in determining the variable cost per unit by analyzing the highest and lowest activity levels.1. **Change in Cost:** - $ \text{Cost at high point} - \text{Cost at low point} = \$5,040 $2. **Change in Volume:** - $ \text{Volume at high point} - \text{Volume at low point} = 180 $3. **Variable Cost per Unit Produced:** - $\text{Variable cost per unit produced} = \$28.00$Using this method, we estimate:- **Total Cost at the High Point:** Not provided directly, but it can be deduced using high-volume data.- **Variable Costs at the High Point:** - Calculated using the volume and variable cost per unit.- **Fixed Costs:** - Calculated by subtracting total variable costs from total cost.This example illustrates how the high-low method allows businesses to break down expenses into variable and fixed costs, providing clearer insights for budgeting and financial planning.

The high-low method is a straightforward and easy-to-understand approach that is frequently employed…

The following information is available for a company's maintenance cost over the last seven months. Month June July August September October November December Units Produced 90 180 120 150 210 240 60 Using the high-low method, estimate both the fixed and variable components of its maintenance cost. Change in cost Change in volume Total cost at the high point Variable costs at the high point: Volume at the high point: Variable cost per unit produced Total variable costs at the high point Total fixed costs Total cost at the low point Variable costs at the low point: Maintenance Cost $ 4,590 7,110 5,430 6,270 7,950 8,790 3,750 Volume at the low point: Variable cost per unit produced Total variable costs at the low point Total fixed costs High-Low method - Calculation of variable cost per unit produced Cost at high point minus cost at low point Volume at high point minus volume at low point $5,040 Variable cost per unit produced = 180 $ 28.00

The following information is available for a company's maintenance cost over the last seven months. Month June July August September October November December Units Produced 90 180 120 150 210 240 60 Using the high-low method, estimate both the fixed and variable components of its maintenance cost. Change in cost Change in volume Total cost at the high point Variable costs at the high point: Volume at the high point: Variable cost per unit produced Total variable costs at the high point Total fixed costs Total cost at the low point Variable costs at the low point: Maintenance Cost $ 4,590 7,110 5,430 6,270 7,950 8,790 3,750 Volume at the low point: Variable cost per unit produced Total variable costs at the low point Total fixed costs High-Low method - Calculation of variable cost per unit produced Cost at high point minus cost at low point Volume at high point minus volume at low point $5,040 Variable cost per unit produced = 180 $ 28.00

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Chapter1: Financial Statements And Business Decisions

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Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

Question

### Understanding the High-Low Method for Estimating Maintenance Costs

The following data reflects a company's maintenance costs over the last seven months. This information helps us apply the high-low method to estimate both the fixed and variable cost components.

#### Monthly Data:

| Month | Units Produced | Maintenance Cost |
|------------|----------------|------------------|
| June | 90 | $4,590 |
| July | 180 | $7,110 |
| August | 120 | $5,430 |
| September | 150 | $6,270 |
| October | 210 | $7,950 |
| November | 240 | $8,790 |
| December | 60 | $3,750 |

#### High-Low Method Calculation

The high-low method helps in determining the variable cost per unit by analyzing the highest and lowest activity levels.

1. **Change in Cost:**
- $ \text{Cost at high point} - \text{Cost at low point} = \$5,040 $

2. **Change in Volume:**
- $ \text{Volume at high point} - \text{Volume at low point} = 180 $

3. **Variable Cost per Unit Produced:**
- $\text{Variable cost per unit produced} = \$28.00$

Using this method, we estimate:

- **Total Cost at the High Point:** Not provided directly, but it can be deduced using high-volume data.
- **Variable Costs at the High Point:**
- Calculated using the volume and variable cost per unit.
- **Fixed Costs:**
- Calculated by subtracting total variable costs from total cost.

This example illustrates how the high-low method allows businesses to break down expenses into variable and fixed costs, providing clearer insights for budgeting and financial planning.

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