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8 February, 14:58

In the Vaughn, maintenance costs are a mixed cost. At the low level of activity (80 direct labor hours), maintenance costs are $600. At the high level of activity (500 direct labor hours), maintenance costs are $2750. Using the high-low method, what is the variable maintenance cost per unit and the total fixed maintenance cost?

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  1. 8 February, 16:52
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    The correct answer is $5.12 and $190.

    Explanation:

    According to the scenario, the given data are as follows:

    Lowest direct labor hour = 80 direct labor hour

    Lowest maintenance cost = $600

    Highest direct labor hour = 500

    Highest maintenance cost = $2,750

    So, we can calculate the variable maintenance cost per unit by using following formula:

    Variable maintenance cost = (Highest cost - Lowest cost) : (Highest direct labor hour - lowest direct labor hour)

    = ($2,750 - $600) : (500 - 80)

    = $2,150 : 420

    = $5.12

    Now we can calculate the total fixed maintenance cost by using following formula:

    Total cost = Variable cost + Fixed cost

    $2,750 = (500 * $5.12) + Fixed cost

    Fixed cost = $2,750 - $2,560

    = $190
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