Question

Lennon Services has a customer marketing service that offers Internet marketing services.Services include graphics, hosting and answering customer queries.. The costs associated with this marketing service over the past six months are listed below:

Month	Marketing service costs	Number of customer queries
January	$13,440	$17,400
February	$13,143	$16,905
March	$13,548	$17,580
April	$13,413	$17,355
May	$12,630	$16,050
June	$12,738	$16,230

Management at Lennon Services believes that the marketing services costs are a mixed cost and would like to use the high-low method to estimate their future costs using the number of customer queries in any given month as the cost driver.

Which month has the highest volume?

Which month has the lowest volume? What is the variable cost per unit? What is the total fixed cost? Using the format y= ax + b, what is the cost estimation formula for Lennon? If Lennon expects 19,000 customer queries in August, what are the anticipated costs?

Answer 1

1
March month has the highest volume
2
May month has the lowest volume
3
	Marketing service costs	Number of customer queries
Highest volume	13548	17580
Lowest volume	12630	16050
Difference	918	1530
Variable cost per unit = 918/1530 = $0.60
4
Total fixed cost	3000	=13548-(17580*0.6)
5
Y = 0.60x + $3000
6
Anticipated costs	14400	=(19000*0.6)+3000