Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to calculate Smithson's fixed costs per month. Round variable cost per unit to two decimal places in your calculations.

Cost Machine Hours

January $52,200 20,000

February 75,000 29,000

March 57,000 22,000

April 64,000 24,500

(A) $2,530

(B) $22,800

(C) $1,600

(D) $50,600

The correct answr is C.

Explanation:

Giving the following information:

Cost Machine Hours

January $52,200 20,000

February 75,000 29,000

March 57,000 22,000

April 64,000 24,500

Variable cost per unit = (Highest activity cost - Lowest activity cost) / highest activity units - Lowest activity units)

Variable cost per unit = (75,000 - 52,200) / (29,000 - 20,000) = 2.53

Fixed costs = Highest activity cost - (Variable cost per unit * HAU)

Fixed costs = 75,000 - (2.53*29,000) = 1600

Fixed costs = LAC - (Variable cost per unit * LAU)

Fixed costs = 52,200 - (2.53*20,000) = 1600