Song, Inc, Uses the High-Low Method to Analyze Cost Behavior

question 66

Multiple Choice

Song, Inc., uses the high-low method to analyze cost behavior. The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour. When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40.
On the basis of this information, the variable cost per machine hour was:

• A) $8.40.
• B) $22.00.
• C) $25.00.
• D) $30.40.
• E) $33.40.

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Definitions:

Dollars

A unit of currency used in various countries, including the United States, Canada, Australia, and New Zealand.

Residuals

Differences between observed and predicted values in a statistical model, used to assess the model's fit.

Error Variable

The difference between observed and predicted values in a statistical model, often referred to as the residual.

Sum of Squares for Error

A measure of the discrepancies or variations between observed and predicted values in a data set, used in statistical analysis.