Question

The manager of Able Car Inspection reviewed the monthly operating costs for the past year. The costs ranged from $4,000 for 1,100 inspections to $3,200 for 700 inspections. Read the requirements. Requirement 1. Use the high-low method to calculate the variable cost per inspection. Select the formula and enter the amounts to calculate the variable cost per inspection. (Round to the nearest cent.) / Change in total cost 800 Change in volume of activity 400 = = Variable cost per inspection $ 2.00 $ Requirement 2. Calculate the total fixed costs. Select the formula and enter the amounts to calculate the total fixed costs. (Use the highest volume and its mixed cost to calculate the total fixed cost.) Total fixed cost Total mixed cost 4,000 Total variable cost 2,200 = $ 1,800 Requirement 3. Write the equation and calculate the operating costs for 900 inspections. Select the formula and enter the amounts to calculate the operating costs for 900 inspections. (Enter all amounts to the nearest cent.) Number of inspections Total mixed cost (Variable cost per inspection de 2.00 ) + ) + Total fixed cost 1800 = = x

Answer 1

Requirement 1: Change in total cost S 800 Change in volume of activity = Variable cost per unit 400 = 2.00 Change in total cost = (Highest cost - Lowest cost) Change in total cost = $4,000 -3,200 Change in total cost = $800 Change in volume of activity = Highest volume - Lowest volume Change in volume of activity = 1,100 - 700 Change in volume of activity = 400 Requirement 2: Total Mixed Cost $ 4.000 - = Total variable Cost 2.200 Total Fixed Cost 1,800 ES Total Mixed Cost = $4,000 Total Variable Cost = Variable cost per unit x Number of units Total Variable Cost = $2.00 x 1.100 Total Variable Cost = $2,200

Requirement 3: (Variable cost per Inspection x Number of Inspections $ 2.00 x 900 + Total Fixed Cost = Total Mixed Cost + 1.800 = 3,600