Answer:
$5,400
Explanation:
During a high level of activity in the month of November, 7,000 machine hours were run and the power costs was $18,000
During a low level of activity in the month of April, 2,000 machine hours were run and the power costs was $9,000
The first step is to calculate the variable cost per unit
= (high power cost-low power cost)/(high machine hours-low machine hours)
= ($18,000-$9,000)/(7,000-2,000)
= 9,000/5,000
= 1.8
Therefore, the estimated fixed cost of the power costs can be calculated as follows
= High power cost-high machine hours×variable cost per unit
= $18,000-7,000×1.8
= 18,000-12,600
= $5,400
Hence the estimated fixed cost element of power costs is $5,400
