Question

Soto Inc. had the following utility cost with the related activity levels for the previous months. The company thinks that the utility cost is related to the activity level.

Month		Activity Level		Utility Cost
January		26		207,000
February		24		188,700
March		25.4		191,000
April		30		220,800
May		27		212,000

Use the high-low method to separte the cost into its fixed and variable components and answer the following questions.

A) What is the variable cost per unit? $

B) What is the total fixed cost? $

C) At an activity level of 29 what would be the expected cost? $

Answer 1

A)	Variable cost per unit	=	$                                    5,350
B)	Fixed Cost	=	$                                  60,300
C)	An activity level of 29 would be expected cost of	=	$                              2,15,450
	Workings:
			Month	Activity level	Total cost
	High Activity	=	April	30	$ 2,20,800
	Low Activity	=	February	24	$ 1,88,700
	Difference	=		6	$     32,100
A)	Variable cost per unit	=	Difference in total cost / Difference in activity
		=	$32100 / 6
		=	$                                    5,350	per unit
B)	Fixed Cost	=	Total cost - Variable cost
		=	$220800 - ($5350 X 30)
		=	$                                  60,300	per month
	or	=	$188700 - ($5350 X 24)
		=	$                                  60,300	per month
C)	An activity level of 29 would be expected cost of	=	$60300 + ($5350 X 29)
		=	$                              2,15,450