Question

Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for Budgeted Output

Speedy Pete’s is a small start-up company that delivers high-end coffee drinks to large metropolitan office buildings via a cutting-edge motorized coffee cart to compete with other premium coffee shops. Data for the past 8 months were collected as follows:

Month	Delivery Cost	Number of Deliveries
May	$63,450	1,800
June	67,120	2,010
July	66,990	2,175
August	68,020	2,200
September	73,400	2,550
October	72,850	2,630
November	75,450	2,800
December	73,300	2,725

Assume that this information was used to construct the following formula for monthly delivery cost.

Total Delivery Cost = $41,850 + ($12.00 × Number of Deliveries)

Required:

Assume that 3,000 deliveries are budgeted for the following month of January. Use the total delivery cost formula for the following calculations:

1. Calculate total variable delivery cost for January.
$

2. Calculate total delivery cost for January.
$

Feedback

1. Total Variable Delivery Cost = Variable Rate × Number of Deliveries

2. Total Delivery Cost = Fixed Cost + (Variable Rate × Number of Deliveries)

Answer 1

Answer :

(1) total variable delivery cost for January. = $ 12* number of deliveries

= $ 12*3000 = $ 36000

(2) Total Delivery Cost = Fixed Cost + (Variable Rate × Number of Deliveries)

= $ 41850 + ( $ 12* 3000 )

= $ 77850

Working note -1

Variable cost per unit = Highest activity cost - Lowest activity cost / Highest activity unit - Lowest activity unit

= $ 75450 - $ 63450 / 2800 - 1800

= $ 12

Note -1

High - low value should be choosen from unit not from Total cost .

Fixed cost = $ 63450 - $ 12*1800 = $ 41850

So , Total Delivery Cost = $41,850 + ($12.00 × Number of Deliveries)