High-Low Method for Service Company Blowing Rock Railroad decided to use the hig

Question

High-Low Method for Service Company Blowing Rock 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 Blowing Rock Railroad Is a measure of railroad operating activity, termed "gross-ton miles,' which is the total number of tons multiplied by the miles moved. Determine the variable cost per gross-ton mile and the fixed cost. Variable cost (Round to two dec.mal places.) $__per gross-ton mile Total fixed cost $__.

Explanation / Answer

Solution:

Miles Transportation Cost Highest Gross - Ton Miles 270,000 628,400 Lowest Gross - Ton Miles 166,000 430,800 Difference 104,000 197,600 Variable Cost = Difference on Gross Ton Miles / Difference in costs Variable cost = $ 197,600 / 104,000 gross - ton miles 1.9 Fixed cost at 270,000 cost = Total cost - Variable cost Total cost 628,400 Less: Variable cost - $ 1.90 * 270,000 513,000 Fixed cost = 115,400

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