Question

Sherri's Tan-O-Rama is a local tanning salon. The following information reflects its number of appointments and total costs for the first half of the year:

Month	Number of Appointments	Total Cost
January	150	5,600
February	500	7,000
March	375	6,600
April	300	5,100
May	325	5,800
June	475	6,900

Using the high-low method, calculate the total fixed cost per month and the variable cost per tanning appointment. (Round your "Variable Cost per Unit" answer to 2 decimal places and "Fixed Cost" answer to the nearest dollar amount.)

Answer 1

Fixed cost per month = $5000

Variable cost per tanning appointment = $4.00

Working

		Cost	No. of activities
A	High Level	$             7,000.00	500
B	Low Level	$             5,600.00	150
C=A-B	Difference	$             1,400.00	350
A	Cost difference	$             1,400.00
B	No. of activities difference	350
C=A/B	Variable cost per unit	$                     4.00
		High Level	Low Level
A	No. of activities	500	150
B	Variable cost per unit	$                4.0000	$                  4.0000
C=AxB	Total Variable cost	$             2,000.00	$                  600.00
D	Total cost	$             7,000.00	$              5,600.00
E=D-C	Total fixed cost	$             5,000.00	$              5,000.00