Question

E5-7 (Algo) Estimating Cost Behavior Using High-Low Method [LO 5-3) 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 January February March April Number of Cavities Filled Total Cost 575 $6,350 625 6,250 200 6.400 600 6,250 525 6,150 375 5,400 475 5,800 350 5,000 400 5,400 May June July August September 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 450 cavities. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Use the high-low method to estimate total fixed cost and variable cost per cavity filled. (Round your Variable cost per unit to 2 decimal places.) Fixed Cost Variable Cost per cavity filled Required 1 Required 2 >

Answer 1

1.

Variable cost per cavity = (Highest activity cost – Lowest activity cost)/(Highest activity cavity – Lowest activity cavity)

= (6,400 - 5,000)/(700 - 350)

= 1,400/350

= $4

Fixed cost = Highest activity cost – (Variable cost per cavity x Highest activity cavity)

= 6,400 - (4 x 700)

= 6,400 - 2,800

= $3,600

2.

Total cost when 450 cavity are produced or used = Fixed cost + (Variable cost per cavity x 450)

= 3,600 + (4 x 450)

= 3,600 + 1,800

= $5,400

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