Question

Continental Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Continental Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved.

	Transportation Costs		Gross-Ton Miles
January	$854,900		228,000
February	953,100		255,000
March	673,600		165,000
April	913,800		247,000
May	766,400		198,000
June	982,600		268,000

Determine the variable cost per gross-ton mile and the total fixed cost.

Variable cost (Round to two decimal places.)	$ per gross-ton mile
Total fixed cost	$

Answer 1

• Variable cost = $ 3.00 per gross ton mile
• Fixed Cost = $ 178,600
• Working

Note:
>Units = Gross ton miles
>Cost = Transportation costs

	Month	Units	Cost
High Level	June	268,000	$                982,600.00
Low Level	Mar	165,000	$                673,600.00
Difference		103,000	$                309,000.00
A	Difference in Cost		$                309,000.00
B	Difference in units		103,000
C = A/B	Variable cost per unit		$                           3.000
Working		High Level	Low Level
A	Total Cost	$              982,600.00	$                673,600.00
B	Total Units	268000	165000
C	Variable cost per unit	$                           3.00	$                             3.00
D = B x C	Total Variable cost	$              804,000.00	$                495,000.00
E = A - D	Total Fixed Cost	$              178,600.00	$                178,600.00