Question

Supply costs at Chobot Corporation’s chain of gyms are listed below:

	Client-Visits	Supply Cost
January	11,671	$28,585
February	11,467	$28,419
March	11,999	$28,843
April	14,400	$28,940
May	11,731	$28,646
June	11,217	$28,245
July	12,011	$28,844
August	11,702	$28,602
September	11,850	$28,727

Management believes that supply cost is a mixed cost that depends on client-visits. Use the high-low method to estimate the variable and fixed components of this cost, Compute the variable component first, rounding off to the nearest whole cent. Then compute the fixed component, rounding off to the nearest whole dollar. Those estimates would be closest to: (Round your Variable cost per unit to 2 decimal places.)

$0.22 per client-visit; $25,772 per month

$0.26 per client-visit; $25,267 per month

$1.91 per client-visit; $28,647 per month

$.80 per client-visit; $18,714 per month

Answer 1

Answer:- a)-Variable Cost per client visit=$.22 per client visit

Fixed costs =$25772

Explanation:-

High-Low Method:-

Variable cost per unit (x) is calculated using the following formula:

Variable cost per unit=a2-a1/b2-b1

Where,
a2 is the total cost at highest level of activity;
a1 is the total cost at lowest level of activity;
b2 are the number of units at highest level of activity; and
b1 are the number of units at lowest level of activity

Total Fixed Cost

Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:

Total Fixed Cost = a2 – x*b2 = a1 – x*b1

We have,
at highest activity: b₂ = 14400; a₂ = $28940
at lowest activity: b₁ = 11217;   a₁ =$28245

Variable Cost per client visit = ($28940− $28245) ÷ (14400 visits – 11217 visits)  

                                         = $695/3183 visits

                                 =$.22 per client visit
Total Fixed Cost = $28940− ($.22 *14400) = $28940 – $3168 =$25772