Answer:
Fixed cost = $1,600
Explanation:
We know,
Total cost = Variable cost + Fixed cost.
And, Using high-low method, variable cost per unit = (Highest cost - Lowest cost) ÷ (Highest Activity - Lowest Activity)
Given,
Highest cost = $16,000
Lowest cost = $7,000
Highest Activity = 8,000 machine hours
Lowest Activity = 3,000 machine hours
Therefore, Using high-low method, variable cost per unit = $(16,000 - 7,000) ÷ (8,000 - 3,000) machine hours
variable cost per unit = $9,000 ÷ 5,000 machine hours = $1.8
Using highest activity and highest cost (Month of November),
Total cost = Variable cost + Fixed cost.
Total cost = (Variable cost per unit x Total activity) + Fixed cost
$16,000 = ($1.8 × 8,000 hours) + Fixed cost
or, $16,000 = $14,400 + Fixed cost
or, $16,000 - 14,400 = Fixed cost
Therefore, Fixed cost = $1,600
