The phone bill for a law firm consists of both fixed and variable costs. Refer to...

The phone bill for a law firm consists of both fixed and variable costs. Refer to the four month data below and apply the high-low method to answer the question. If the company uses 390 minutes in September, how much will the total bill be? (Round your intermediate calculations to two decimal places.)

	Minutes	total bill
may	490	$3200
june	210	2700
july	160	2650
august	330	2800

$3,356.70

$2,381.70

$3,033.00

$2,587.23

Solutions

Expert Solution

Here, the high level of activity was in the month of May when 490 minutes were used and the low level of activity was in the month of July when 160 minutes were used.

	Minutes	Total bill
High level of activity	490	$3,200
(-) Low level of activity	( 160 )	( $2,650 )
Difference	330	$550

Variable cost per minute = Difference in total bill / Difference in minutes = $550 / 330 minutes = 1.67 per minute.

Let us calculate the total fixed cost using the data of high level of activity

Total bill = [ Minutes * Variable cost per unit ] + Total fixed cost

$3,200 = [ 490 minutes * $1.67 ] + Total fixed cost

$3,200 = $818.3 + Total fixed cost

Total fixed cost = $3,200 - $818.3 = $2,381.7

Let us now calculate the total bill if the company uses 390 minutes in September :

Total bill = [ Minutes * Variable cost per unit ] + Total fixed cost = [ 390 minutes * $1.67 ] + $2,381.7 = $3,033 [ 3rd option ]

ekkarill92 answered 1 year ago

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