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:

Month	Number of Cavities Filled	Total Cost
January	350	$5,200
February	475	5,750
March	450	5,600
April	425	5,550
May	625	6,050
June	525	6,100
July	500	5,700
August	650	6,100
September	375	5,250

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 400 cavities.

1.

	Fixed Cost Variable Cost per cavity filled

2.

	Estimated Total Cost

Answer 1

Answer to Part 1.

As per High-Low method,
Variable Cost per Unit = y2 – y1 / x2 – x1
Total Cost at Highest Level of activity (y2) = $6,100
Total Cost at Lowest Level of activity (y1) = $5,200
Units at Highest level of activity (x2) = 650 cavities filed
Units at Lowest level of activity (x1) = 350 cavities filed

Variable Cost per Cavity filed = ($6,100 - $5,200) / (650 – 350)
Variable Cost per Cavity filed = $3

Total Cost = a + bx
Total Cost at Highest Level of activity = $6,100
$6,100 = a + $3 * 650
$6,100 = a + $1,950
a = $4,150

Therefore, Fixed Cost is $4,150

Answer to Part 2.

Total Cost = Fixed Cost + Variable Cost
Total Cost = $4,150 + ($3 * 400)
Total Cost = $5,350