Question

The Bradshaw Law Office has the following monthly telephone records and costs:

Calls		Costs
2,000		$2,400
1,500		2,000
2,200		2,600
2,500		2,800
2,300		2,700
1,700		2,200

Identify the fixed and variable cost elements using the high-low method.

		High		Low
Variable cost		$		$
Fixed cost		$		$

Answer 1

Solution

	High	Low
Variable cost	$                  0.80	$           0.80
Fixed cost	$             800.00	$      800.00

Working

		Cost	No. of activities
A	High Level	$             2,800.00	2500
B	Low Level	$             2,000.00	1500
C=A-B	Difference	$                800.00	1,000
A	Cost difference	$                800.00
B	No. of activities difference	1000
C=A/B	Variable cost per unit	$                     0.80
		High Level	Low Level
A	No. of activities	2500	1500
B	Variable cost per unit	$                0.8000	$                  0.8000
C=AxB	Total Variable cost	$             2,000.00	$              1,200.00
D	Total cost	$             2,800.00	$              2,000.00
E=D-C	Total fixed cost	$                800.00	$                  800.00