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CMA Intermediate · Cost Accounting · Introduction to Cost Accounting

A factory's maintenance cost is Rs 38,000 at 2,000 machine hours and Rs 50,000 at 3,000 machine hours. Using the high-low method, the fixed element of maintenance cost is:

The fixed element is Rs 14,000. The variable rate is the change in cost over the change in hours, Rs 12,000 divided by 1,000, which is Rs 12 per hour. Deducting Rs 24,000 variable cost from Rs 38,000 at 2,000 hours leaves Rs 14,000.

  1. ARs 12,000
  2. BRs 14,000
  3. CRs 26,000Correct
  4. DRs 38,000

Explanation

Variable rate = (50,000 - 38,000)/(3,000 - 2,000) = Rs 12 per hour. Variable cost at 2,000 hours = 24,000, so fixed = 38,000 - 24,000 = Rs 14,000. Check at 3,000 hours: 36,000 + 14,000 = 50,000. Hence the fixed element is Rs 14,000.

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