Problem:
The controller of Sedgwick Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs.
|
Month
|
Total
Maintenance Costs
|
Total
Machine Hours
|
|
January
|
$2,800
|
3,000
|
|
February
|
3,000
|
4,000
|
|
March
|
3,600
|
6,000
|
|
April
|
4,500
|
7,900
|
|
May
|
3,200
|
5,000
|
|
June
|
5,000
|
8,000
|
Instructions
(a) Determine the fixed and variable cost components using the high-low method.
(b) Prepare a graph showing the behavior of maintenance costs, and identify the fixed and variable cost elements. Use 2,000-hour increments and $1,000 cost increments.