Question

M5-10 (Algo) Estimating Cost Behavior Using High-Low Method (LO 5-3) Sherri's Tan-O-Rama is a local tanning salon. The following information reflects its number of appointments and total costs for the first half of the year: Month January February March April Number of Appointments 300 250 Total Cost $6,150 5,500 6,600 5,500 6,850 6,300 325 200 425 May June 275 Using the high-low method, calculate the total fixed cost per month and the variable cost per tanning appointment. (Round your "Variable Cost per Unit" answer to 2 decimal places and "Fixed Cost" answer to the nearest dollar amount.) 2.50 Variable Cost per Unit Fixed Cost

Answer 1

Solution

Variable cost of per unit	$                  6.00
Fixed cost	$          4,300.00

Working

		Cost	No. of activities
A	High Level	$             6,850.00	425
B	Low Level	$             5,500.00	200
C=A-B	Difference	$             1,350.00	225
A	Cost difference	$             1,350.00
B	No. of activities difference	225
C=A/B	Variable cost per unit	$                     6.00
		High Level	Low Level
A	No. of activities	425	200
B	Variable cost per unit	$                6.0000	$                  6.0000
C=AxB	Total Variable cost	$             2,550.00	$              1,200.00
D	Total cost	$             6,850.00	$              5,500.00
E=D-C	Total fixed cost	$             4,300.00	$              4,300.00