Stetson University teaches a large range of undergraduate courses. It is interes

Question

Stetson University teaches a large range of undergraduate courses. It is interested in determining the cost equation for the facilities cost as a function of student credit hours so that it an more accurately budget its facilities costs as enrollment grows. Information for the high and low cost semesters and volumes for last 5 years appears below Semester Student Credit Hours Facilities Cost Spring 2007 250,000 $500,000 Fall 2004 300,000 $530,000 Using the high low method, with student credit hours as the activity driver, what is the equation for facilities cost (FC) as a function of student credit hours? FC = $1.77 / student credit hour FC = $350,000 + $0.60 / student credit hour FC = $2 / student credit hour FC = -$585,100 + $1.67 / student credit hour

Explanation / Answer

Variable cost = (530000 - 500000) / (300000 - 250000) = 30000/50000 = $0.60 Fixed cost = 500000 - 0.60 x 250000 = $350000 Thus, the equation for FC is FC = $350,000 + $0.60 / student credit hour Hope this helps!

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