US CMA Part 1 · Chapter 2 · Question 11 of 30
Utility costs at Orchard Foods were $61,500 in the month with the highest activity (9,000 machine hours) and $43,500 in the month with the lowest activity (5,000 machine hours). Using the high-low method, what are the expected utility costs at 7,500 machine hours?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $54,750
Explanation
Variable cost per hour = ($61,500 - $43,500) / (9,000 - 5,000) = $4.50. Fixed cost = $61,500 - $4.50 x 9,000 = $21,000. Cost at 7,500 hours = $21,000 + $4.50 x 7,500 = $54,750.
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