Question

Mountain Dental Services is a specialized dental practice whose only service is filling cavities. Mountain has recorded the following for the past nine months:

Month	Number of Cavities Filled	Total Cost
January	400	$5,350
February	325	5,050
March	675	6,600
April	700	6,300
May	425	5,450
June	500	5,850
July	550	6,150
August	300	5,200
September	450	5,500

Required:

1. Use the high-low method to estimate total fixed cost and variable cost per cavity filled.

2. Using these estimates, calculate Mountain’s total cost for filling 800 cavities.

Answer 1

Variable cost = (Cost at highest activity - Cost at lowest activity) /(Highest activity-Lowest activity)

= (6300-5200)/(700-300) = 2.75

Fixed cost = 6300 - (700*2.75) = 4375

Fixed cost	4375
Variable cost per unit	2.75

Total estimated cost = (2.75*800) + 4375 = 6575