CMA Foundation · Fundamentals of Financial and Cost Accounting · Classification of Costs (CAS 1)
A factory of Sundaram Textiles in Coimbatore incurred a semi-variable maintenance cost of ₹58,000 at 4,000 machine hours and ₹70,000 at 6,000 machine hours. Using the high-low method, what is the expected maintenance cost at 5,000 machine hours?
The expected maintenance cost is ₹64,000. The variable rate is ₹12,000 divided by 2,000 hours, or ₹6 per hour; fixed cost is ₹34,000. At 5,000 hours the cost is 34,000 plus 30,000, which equals ₹64,000.
- A₹62,000
- B₹64,000Correct
- C₹66,000
- D₹60,000
Explanation
Variable rate = (70,000 − 58,000)/(6,000 − 4,000) = ₹6 per hour. Fixed cost = 58,000 − 6×4,000 = ₹34,000. At 5,000 hours: 34,000 + 30,000 = ₹64,000. Check: it is the midpoint of 58,000 and 70,000. ₹62,000 would result from ignoring fixed cost incorrectly.
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