Skip to content

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

Mehta Engineering's monthly maintenance cost was ₹84,000 when machine hours were 2,000 and ₹96,000 when machine hours were 2,600. Using the high-low method, what is the expected maintenance cost for 2,400 machine hours?

The high-low method gives a variable cost of ₹20 per machine hour from the change in cost over the change in hours, and fixed cost of ₹44,000. At 2,400 hours, cost is 44,000 plus 48,000, which equals ₹92,000.

  1. A₹92,000Correct
  2. B₹90,000
  3. C₹1,00,800
  4. D₹88,000

Explanation

Variable rate = (96,000 - 84,000)/(2,600 - 2,000) = 12,000/600 = ₹20 per hour. Fixed cost = 84,000 - 2,000×20 = ₹44,000. Cost at 2,400 hours = 44,000 + 48,000 = ₹92,000. Check: 96,000 - 200×20 = 92,000. Using the total cost per hour instead of the variable rate gives a wrong figure.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Cost and Management Accounting shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Cost and Management AccountingFree diagnostic mock

More Introduction to Cost and Management Accounting questions