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: Total Cost $5,200 6,250 Number of Cavities Month Filled January 400 February 650 March 575 April 500 300 525 325 August 425 September 625 May June July 6,200 5,900 5,200 6,000 5,200 5,500 6,280 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 550 cavities. ER

Answer 1

1.

Variable cost per Cavity filled = (Highest activity cost – Lowest activity cost)/(Highest activity Cavity filled – Lowest activity Cavity filled

= (6,250 - 5,200)/(650 - 300)

= 1,050/350

= $3

Fixed cost = Highest activity cost – (Variable cost per Cavity filled x Highest activity Cavity filled)

= 6,250 - (3 x 650)

= 6,250 - 1,950

= $4,300

2.

Total cost when 550 cavities filled = Fixed cost + (Variable cost per Cavity filled x 550 )

= 4,300 + (3 x 550)

= 4,300 + 1,650

= $5,950

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