Question

The local franchise of Vogorio Sandwich Company assigns you the task of estimating total maintenance cost on its delivery vehicles. This cost is a mixed cost. You are given the following data from past months:

Month	Units	Costs
January	4,400	$7,000
February	5,000	$7,600
March	4,100	$6,900
April	5,300	$8,000
May	5,000	$7,900
December	8,600	$10,400

Required:

A. Using the high-low method, determine the total amount of fixed costs and the amount of variable cost per unit.  

B. If the number of units turned out to be 9,000 for a given month, what would be the fixed portion, the variable portion, and the total cost to be expected?  

Answer 1

Solution

Requirement a

Variable cost per employee	$ 0.78
Fixed cost	$ 3,711.11

.

.Requirement b

Variable cost	$            7,000.00
Fixed cost	$            3,711.11
Total cost	$          10,711.11

Working

		Cost	No. of activities
A	High Level	$          10,400.00	8600
B	Low Level	$             6,900.00	4100
C=A-B	Difference	$             3,500.00	4,500
A	Cost difference	$             3,500.00
B	No. of activities difference	4500
C=A/B	Variable cost per unit	$                     0.78
		High Level	Low Level
A	No. of activities	8600	4100
B	Variable cost per unit	$                0.7778	$                  0.7778
C=AxB	Total Variable cost	$             6,688.89	$              3,188.89
D	Total cost	$          10,400.00	$              6,900.00
E=D-C	Total fixed cost	$             3,711.11	$              3,711.11

.

Activity level	9,000
Variable cost	$            7,000.00
Fixed cost	$            3,711.11
Total cost	$          10,711.11