Estimating Total Printer Maintenance Cost Using the High-Low Method

Explanation:

To estimate the total printer maintenance cost for Buckley Photography when production is 40,000 units, we use the high-low method. This method involves calculating the variable cost per unit using the highest and lowest levels of activity and the costs associated with them. First, we find the change in maintenance costs between the high and low activity levels and divide that by the change in the number of units produced to find the variable cost per unit. Then, we can calculate the total variable costs for 40,000 units and add any fixed costs to estimate the total maintenance cost.

The calculation is as follows:

  • Change in Cost = Cost at High Activity Level - Cost at Low Activity Level
  • Change in Units = Units at High Activity Level - Units at Low Activity Level
  • Variable Cost per Unit = Change in Cost / Change in Units

Substituting the given figures:

  • Change in Cost = $432,000 - $340,000 = $92,000
  • Change in Units = 69,000 - 23,000 = 46,000 units
  • Variable Cost per Unit = $92,000 / 46,000 units = $2 per unit

Now, to calculate the estimated total maintenance cost for 40,000 units:

  • Total Variable Cost = Variable Cost per Unit * Number of Units
  • Total Variable Cost = $2 * 40,000 units = $80,000

Without information on fixed costs, we assume they are zero or included in the costs provided for high and low levels. Therefore, the estimated total maintenance cost for 40,000 units is $80,000.

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