Question

Cannon’s Copy Shop is a virtual document copy service (they make virtual copies… go figure). With the following data, use the high-low method to estimate Cannon’s total costs (fixed and variable) when demand is at 250,000 documents:

Month                         Documents Sold                     Total Costs

September                        278,900                              $80,720

October                            286,500                              $82,300

November                        212,200                              $67,440

December                         239,450                              $72,860

January                             228,500                              $71,100

   a. Total Cost = $25,000

   b. Total Cost = $50,000

   c. Total Cost = $58,850

   d. Total Cost = $75,000

Answer 1

Answer

d. Total Cost = $75,000

Calculations:

	Lowest range	Highest range
Cost	$         67,440	$          82,300
Documents	212,200	286,500

As per High Low Method,

Variable cost per document = Change in costs / change in hours

Variable cost per document = ($ 82,300-67,440)/(286,500-212,200)

Variable cost per document = $ 4,860 / 74,300

Variable cost per document = $ 0.2

Fixed Cost = Total Cost - Variable Cost

Fixed Cost = Total Cost - (Variable Cost per hour * hours)

Fixed Cost = $ 82,300-($ 0.2 * 286,500)

Fixed Cost = $ 25,000

Cost at 250,000 documents = (250,000 * 0.2) + 25,000

= $ 75,000

In case of any doubt, please comment.