Answer:
Wilson Corporation
Using the high-low method, the fixed portion of the electrical cost each month would be:
$400.
Explanation:
a) Data and Calculations:
Month Machine-Hours Electrical Cost
January 2,000 $ 1,560
February 3,000 $ 2,200
March 2,400 $ 1,750
April 1,900 $ 1,520
May 1,800 $ 1,480
June 2,100 $ 1,600
Highest activity occurred in February and the lowest activity occurred in May. These two period's activity data are used to compute the fixed cost for each month as follows:
February 3,000 $ 2,200
May 1,800 $ 1,480
Difference 1,200 $720
Variable cost per unit = $720/1,200 = $0.60
For February, the total variable cost is $1,800 ($0.60 * 3,000)
Therefore, the fixed cost = total cost minus the variable cost
= $2,200 - $1,800
= $400
Check:
For the month of May, the total variable cost is $1,080 ($0.60 * 1,800)
Therefore, the fixed cost = $1,480 - $1,080 = $400
