Maintenance costs at a factory have been recorded as follows: Month 1: 4,100 machine hours, cost £25,000 Month 2: 3,200 machine hours, cost £21,840 Month 3: 5,600 machine hours, cost £30,240 Using the high-low method, what is the estimated maintenance cost for a month with 4,800 machine hours?

Correct answer: A) £27,440

Explanation

Variable cost per hour = (£30,240 - £21,840) / (5,600 - 3,200) = £8,400 / 2,400 = £3.50. Fixed cost = £21,840 - (3,200 x £3.50) = £10,640. Estimated cost at 4,800 hours = £10,640 + (4,800 x £3.50) = £27,440. Month 1 is ignored because the high-low method uses only the highest and lowest activity levels.