Question

answer the problem

E6-11 High-Low Method; Multiple Stages Aerobics School's operating costs have three components: facility cost (fixed), exercise supplies (variable), and manpower cost (mixed). Past records reveal that, at the activity level of 500 operating hours, the following overhead costs were incurred: Facility cost....... $30,000 Exercise supplies 10,000 Manpower cost....... 24,000 Total ...... $64,000 The same records also reveal that, at the 700 operating-hour level, the total overhead was $76,000. Required: 1. Estimate the cost of exercise supplies at the 700-hour level. 2. What is the facility cost at the 700-hour level? 3. Estimate the manpower cost at the 700-hour level. 4. What is the variable cost per hour of the manpower cost? 5. What is the fixed portion of the manpower cost? 6. Compute the total fixed cost of the school. 7. What is the variable cost per hour of operating the school? 8. Present the cost formula for operating the school. 9. Estimate the school operating costs at the 600-hour level.

Answer 1

1. Cost of exercise supplies per hour = $10000/500 = $20 per hour
Cost of Exercise Supplies at 700 hour level = 700 x $20 = $14000

2. Facility Cost at 700 hour level = $30000, since it is a fixed cost

3. Manpower cost at 700 hour level = $76000 - 30000-14000 = $32000

4. Variable Cost per hour of manpower cost = ($32000-24000)/(700-500) = $40 per hour

5. Fixed Portion = $24000 - 500 x $40 = $4000

6. Total Fixed Cost = $30000+4000 = $34000

7. Variable Cost per hour = $20+40 = $60 per hour

8. Cost formula = $34000 + $60 x hours

9. Cost at 600 hours = $34000 + 600 x $60 = $70000