Using the High-Low Method, the Monthly Fixed Component of Maintenance

question 59

Multiple Choice

$\begin{array}{ccc}\text { Month}&\text { Total Maintenance Cost}&\text { Production Volume (units) }\\\text { January } & \$ 1,980 & 1,850 \text { units } \\\text { February } & \$ 1,800 & 1,500 \text { units } \\\text { March } & \$ 2,200 & 2,600 \text { units } \\\text { April } & \$ 2,180 & 2,275 \text { units } \\\text { May } & \$ 2,300 & 2,750 \text { units }\end{array}$

Using the high-low method, the monthly fixed component of maintenance cost is:

• A)$1,600.
• B)$1,200.
• C)$1,100.
• D)$1,300.

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Definitions:

Sunk Costs

Expenditures that have already been incurred and cannot be recovered.

Incremental Costs

Expenses that will be incurred only as a result of undertaking a specific action.

GAAP

Generally Accepted Accounting Principles; a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.

Erosion Cost

Costs that occur when the introduction of a new project reduces sales and profits of existing products.