Question

The Rowan Management Team, provides training classes teaching Excel classes. The company is relatively new and management is seeking information regarding the Team's cost structure. The following information has been gathered since the inception of the business in July of the current year: Classes Offered Costs Incurred July 10 12 August September 15 $17,000 $18,800 $20,900 $23,762 $21,800 October 18 November 16 December 13 $19,400 Required: a. Using the high-low method, estimate the variable cost per seminar and the total fixed cost per month. b. Calculate the estimated total costs if 25 seminars are offered in January.

Answer 1

a.

Highest activity cost = $23,762

Lowest activity cost = $17,000

Highest activity = 18

Lowest activity = 10

Variable cost per seminar= (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)

= (23,762-17,000)/(18-10)

= 6,762/8

= $845.25 per seminar

Fixed cost = Highest activity cost - Highest activity x Variable cost per seminar

= 23,762- 18 x 845.25

= 23,762-15,214.50

= $8,547.50

b.

The estimated total costs, if 25 seminars are offered in January = Fixed cost + Variable cost per seminar x Activity(Number of seminars)

= 8,547.50+  845.25 x 25

= 8,547.50+21,131.25

= $29,678.75

Note: Actual answer may slightly differ due to rounding off.

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