Question

Danielle Nicole has been operating a dental practice for the past five years. As part of her practice she operates a dental hygiene clinic. She has found that the costs of operating the clinic vary with the patient load. Costs for the clinic over the past eight months are as follows: Month February March April May Patients served 320 480 600 720 Total cost of clinic $2,000. $2,500. $3,000. $4,500. Month June July August September Patients served 560 200 300 620 Total cost of clinic $2,900. $1,900. $2,200. $3,400. a) Use the high low method to determine the clinic's "behavioural costs." Place boxes around your answers. (3 marks)

Answer 1

a)	Variable cost per unit as per high low method =	(Highest Activity Cost - Lowest Activity Cost)/(Highest activity units - Lowest activity units)
		(4500-1900)/(720-200)
	Variable cost per unit as per high low method =	$5.00
	Fixed cost = Highest activity cost – (Variable cost per unit x Highest activity units)
	Fixed Cost = 4,500 - (5*720)
	Fixed Cost = 4,500 - 3,600
	Fixed Cost = $ 900
	Behavioural Cost model = Fixed cost + Variable cost x Unit activity
	Behavioural Cost model = 900 + 5* Unit Activity