The Business School at Eastern College is accumulating data as a first step in t

Question

The Business School at Eastern College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:

  

       
The controller's office has analyzed the data and has given you the results from the regression analysis:
  

        

           

If the controller uses the high-low method to estimate costs, the variable cost per credit hour is: (Round your answer to 2 decimal places.)

Administrative Credit   Month Costs Hours   July $ 128,672     343                August 83,140     235                September 225,855     1,477                October 216,543     1,083                November 258,237     1,372                December 185,224     1,333                January 219,845     1,409                February 245,243     1,327                March 210,420     1,134                April 192,452     1,250                May 249,490     1,554                June 170,707     548                July 127,547     357                              Total $ 2,513,375     13,422                Average 193,337     1,032             

Explanation / Answer

Cost estimation under high low method:-

Variable cost per credit hour= changes in variable cost /change In credit hour

Highest in November= administrative cost is 258237 and credit hour is 1372

Lowest in August = administrative cost is 83140 and credit hour is 235

Variable cost per credit hour= (258237 - 83140)/(1372 - 235)

= 175097 /1137

= 153.9991 or 154 per credit hour

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