Obj. 1 base miles EX 19-8 High-low method for a service company Boston Railroad
ID: 2329207 • Letter: O
Question
Obj. 1 base miles EX 19-8 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 used by Boston Railroad is a measure of railroad operating activity, termed "gross-ton mle which is the total number of tons multiplied by the miles moved. January February March April May Transportation Costs $1,776,000 2,700,000 1,650,000 1,860,000 1,440,000 1,566,000 Gross-Ton Miles 560,000 1,000,000 500,000 600,000 400,000 460,000 Determine the variable cost per gross-ton mile and the total fixed cost.Explanation / Answer
Variable cost per gross-ton mile=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)
=(2,700,000-1,440,000)/(1,000,000-400,000)
which is equal to
=$2.1 per gross-ton mile
Total fixed cost=$2,700,000-($2.1*1,000,000)
which is equal to
=$600,000.
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