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CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Mehta Engineering, Rajkot, has a semi-variable maintenance cost. At 2,000 machine hours the cost is ₹58,000 and at 3,500 machine hours it is ₹80,500. What would the maintenance cost be at 3,000 machine hours?

The maintenance cost at 3,000 machine hours is ₹73,000. The high-low method gives a variable rate of ₹15 per hour and fixed cost of ₹28,000, so the cost is 28,000 plus 3,000 times 15, which equals ₹73,000.

  1. A₹73,000Correct
  2. B₹69,000
  3. C₹75,000
  4. D₹71,500

Explanation

Variable rate = (80,500 - 58,000)/(3,500 - 2,000) = 22,500/1,500 = ₹15 per hour. Fixed = 58,000 - 2,000×15 = ₹28,000. At 3,000 hours: 28,000 + 45,000 = ₹73,000. Check using 3,500 hours: 28,000 + 52,500 = 80,500. Option ₹69,000 results from wrongly using a lower fixed component.

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