Question

High-Low Method for a Service Company Boston Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved. Transportation Costs Gross-Ton Miles January $1,022,500 292,000 1,140,000 326,000 805,700 211,00033 4,093,000 316,000 916,700 254,000 125.300 343,000 Determine the variable per gross-ton mile and the fixed cost. S p er gross-ton mile Variable cost (Round to two decimal places Total fixed cost

Answer 1

	Transportation Costs	Gross-Ton Miles
High level of activity (June)	1175300	343000
(-) Low level of activity ( March )	805700	211000
Difference	369600	132000

Variable cost per gross-ton mile = Difference in Transportation cost / Difference in Gross-Ton Miles = 369600 / 132000

2.80

per gross-ton mile

Now let us calculate the total fixed costs from the data of high level of activity
Total transportation cost = ( Gross ton miles * Variable cost per gross ton mile ) + Total fixed costs
1175300 = ( 343000 * 2.80 ) + Total fixed costs
1175300 = 960400 + Total fixed costs
Total fixed costs = 1175300 - 960400	214900