Question

The Mona Western University operates a Laundromat, solely for the purpose of providing laundering services to students in residence. You have been hired as an accounting student, to analyze the cost of the laundering services. The university administration has assembled the data for a twelve month period pertaining to the monthly total costs of providing the service and the corresponding number of students who used the laundering facilities each month. The table below shows the monthly data collected over the academic year under review. Month Total Laundering Costs # of Students Laundering 1,200 1,650 2,000 August September October November December January February March April May June July 188.800 213,100 232,000 248,200 261,700 269,800 242,800 250,900 253,600 226,600 169,900 161.800 2,300 2,550 2,700 2,200 2,350 2,400 1,900 850 700 a) Determine the variable cost per student and the fixed cost using the high-low method. (3 marks) b) What is the equation of the total mixed cost function? (2 marks) c) In August of the upcoming academic year, the university expects the number of students using the Laundromat to increase to 3,400. What is the expected total laundering cost for August? (2 marks) d) From the data set given, generate the scatter diagram for Mona Western University, clearly showing the line of best fit (trend line). (4 marks) e) Using the trend line, determine Mona University's fixed cost per month and the variable cost per student. (use of 2,500 students.) (4 marks) f) Based on the scatter gram, what is the equation of the total mixed cost function? (3 marks) g) Which of the two methods would be more appropriate? Explain your answer. (2 marks)

Answer 1

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Mona Western University
Answer a
High Low method
Variable cost=	(Highest activity cost- Lowest activity cost)/ (Highest activity units- Lowest activity units)
	Month	Costs	Number of students
Highest activity	January	269,800.00	2,700.00
Lowest activity	July	161,800.00	700.00
Difference		108,000.00	2,000.00
Variable cost per student		54.00
Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost	269,800-(2700*54)
Fixed cost	124,000.00
Answer b
Equation of total mixed cost function
Total mixed cost= Fixed cost + Variable cost*Number of Students
Total mixed cost= 124,000 cost + 54*Number of Students
Answer c	August Month
Number of students	3,400.00
Variable cost per student	54.00
Total Variable cost	183,600.00
Fixed cost	124,000.00
Estimated total laundering cost for August	307,600.00