Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000 level of
activity and total expense per unit of $1.95 at the 21,000 unit level of activity.
The best estimate of the total fixed cost per period for Maxwell Company is:
To calculate the variable manufacturing cost per unit:
Variable manufacturing overhead cost = Change in cost
Change in activity =
($40,950 - $32,000)
(21,000 - 16,000) = $1.79
Fixed cost element of manufacturing overhead = Total cost - Variable cost element =
$40,950 - ($1.79 x 21,000) = $3,360
The linear equation Y = a + bX is often used to express cost formulas. In this equation:
A) the b term represents variable cost per unit of activity.
B) the a term represents variable cost in total.
C) the X term represents total cost.
D) the Y term represents total fixed cost.
Bell Company has provided the following data for maintenance costs:
Using the high-low method, the cost formula for maintenance cost would be:
A) $2.00 per machine hour
B) $1.625 per machine hour
C) $18,000 plus $0.50 per machine hour
D) $24,000 plus $0.50 per machine hour
Variable cost = Change in cost
Change in activity
= ($26,000 - $24,000)
(16,000 - 12,000) = $0.50
Fixed cost element = Total cost - Variable cost element
= $26,000 - ($0.50 x 16,000) = $18,000
Therefore, the cost formula for total maintenance cost is $18,000 per period plus $0.50
per machine-hour, or Y = $18,000 + $0.50X.