Larker Brothers, Inc., used the high-low method to derive its cost formula for electrical power cost.According to the cost formula, the variable cost per unit of activity is $4 per machine-hour.Total electrical power cost at the high level of activity was $19,200 and at the low level of activity was $18,400.If the high level of activity was 3,300 machine hours, then the low level of activity was:

A) 3,100 machine hours
B) 3,200 machine hours
C) 3,000 machine hours
D) 2,900 machine hours

Question

Nelly Chahine · Accepted Answer

Final Answer : A, Explanation :  Total cost = Total fixed cost + Total variable costHigh level of activity:$19,200 = Total fixed cost + ($4 per machine-hour × 3,300 machine hours)Total fixed cost = $19,200 ? $13,200 = $6,000Low level of activity:$18,400 = $6,000 + ($4 per machine-hour × Low level of activity)$4 per machine-hour × Low level of activity = $18,400 ? $6,000 = $12,400Low level of activity = 3,100 machine hours.

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