Question

Question: 39 A conglomerate outsources the cleaning of its theaters. The cleaning vendor's charges are based upon the total hours needed to clean the facilities, and more cleaning time is needed as more people attend the theater. The conglomerate has accumulated the following historical data. Cleaning Number of Theater Month Cost Tickets Sold April $11,000 19,700 May 9,000 17,000 June 15,600 28,000 July 15,000 29,000 The conglomerate anticipates selling 25,000 theater tickets in August. If the conglomerate uses the high-low method of separating costs into their fixed and variable components, the conglomerate's budget for August cleaning costs would be A $13,000 B. $13,400 C. $13,500 D. $13,800

Answer 1

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

= (15000-9000)/(29000-17000)

= 0.5

Fixed cost = 15000 - (29000*0.50) = 500

Total Cost

= (0.5*25,000)+500

= 13,000

Option A