Question

Supply costs at Coulthard Corporation's chain of gyms are listed below: Client-Visits Supply Cost March 11,666 $ 28,349 April 11,462 $ 28,296 May 11,994 $ 28,434 June 13,900 $ 28,930 July 11,726 $ 28,365 August 11,212 $ 28,231 September 12,006 $ 28,438 October 11,697 $ 28,357 November 11,845 $ 28,396 Management believes that supply cost is a mixed cost that depends on client-visits. Use the high-low method to estimate the variable and fixed components of this cost. Compute the variable component first, rounding off to the nearest whole cent. Then compute the fixed component, rounding off to the nearest whole dollar. Those estimates are closest to: (Round your intermediate calculations to 2 decimal places.) Multiple Choice $1.95 per client-visit; $28,366 per month $.84 per client-visit; $18,258 per month $0.30 per client-visit; $24,811 per month $0.26 per client-visit; $25,316 per month

Answer 1

Month	Client Visits	Supply cost
Mar	11,666	$28,349
Apr	11,462	$28,296
May	11,994	$28,434
Jun	13,900	$28,930
Jul	11,726	$28,365
Aug	11,212	$28,231
Sept	12,006	$28,438
Oct	11,697	$28,357
Nov	11,845	$28,396
High Low Method for predicting cost
Variable cost as per High-low method = Highest Utility cost - Lowest Utility cost
Highest Utility units - Lowest Utility units
Highest Utility cost = $28,930(For the month of Jun)
Highest Utility units = 13,900 units(For the month of Jun)
Lowest Utility cost = $28,231(For the month of Aug)
Lowest Utility units = 11,212 units(For the month of Aug)
Variable cost as per High-low method = 28,930 - 28,231
13,900-11,212
Variable cost as per High-low method =$699 / 2,688 units
Variable cost as per High-low method =$0.26 per client visit
Fixed cost = Highest Activity cost - (Variable cost per unit*Highest Activity units)
Fixed cost = $28,930 - (13,900 units * $0.26)
Fixed cost = $28,930 - $3,614
Fixed cost = $25,316