The Longreach Toy Factory Has Determined Machine Hours to Be

question 46

Multiple Choice

The Longreach Toy Factory has determined machine hours to be the cost driver of the company's electricity costs.During the first six months of the year,the company incurred the following electricity costs:
Using the high-low method,estimate the variable cost per machine hour:

• A) $8.38
• B) $7.44
• C) $5.50
• D) None of the given answers

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (both fixed and variable) in the cost of a product.

Contribution Margin

The profit remaining after variable costs have been subtracted from revenue, indicating how much contributes to covering fixed costs and generating profit.

Variable Cost

Variable costs are expenses that change in proportion to the activity of a business, such as materials and labor costs.

Fixed Manufacturing Overhead

Consists of production costs that do not change with the volume of manufacturing activity, such as rent for the manufacturing facilities or salaries of plant managers.