Question

High-Low Method Luisa Crimini has been operating a beauty shop in a college town for the past 10 years. Recently, Luisa rented space next to her shop and opened a tanning salon. She anticipated that the costs for the tanning service would primarily be fored, but found that tanning salon costs increased with the number of appointments. Costs for this service over the past months are as follows: Tanning Month Appointments Total Cost January 800 $1,752 February 2,100 $2,180 March $2.740 3,400 2,400 April $2,500 $1,800 June July 1,500 2,200 2,190 3,100 $2,295 $2,300 $2,620 August Required: 1. Which month represents the high point? The low point? High point March Low point April In your calculations, round per unit costs to the nearest cent. 2. Using the high-low method, compute the variable rate for tanning Compute the fowed cost per month Round the variable rate per tanning appointment to the use it in your further calculations. Round the fixed cost per month to the nearest dollar and use it in your further calculations Variable rate for tanning 0.38 per tanning appointment Fixed cost per month 920

Answer 1

1.

High point = March

Low point = January

2.

Variable rate for tanning = $2,740 - 1,752 / 3,400 - 800

Variable rate for tanning = $988 / 2,600 = $0.38 per tanning appointment

Fixed cost per month = $2,740 - 1,292 (3,400*0.38) = $1,448

3.

Total tanning service cost = $1,448 + ($0.38 * Number of appointments)

4.

Total predicted cost for September = $1,448 + 912 ($0.38*2,400) = $2,360

Total fixed cost for September = $1,448

Total predicted variable cost for September = $912 ($0.38*2,400)