Brazilia Bus Tours has incurred the following bus maintenance costs during the r

Question

Brazilia Bus Tours has incurred the following bus maintenance costs during the recent tourist season. (The real is Brazil’s national monetary unit. On the day this exercise was written, the real was equivalent in value to .5092 U.S. dollar.) Month Miles Traveled by Tour Buses Maintenance Cost November 13,950 20,450 real December 16,700 18,200 January 19,450 18,350 February 23,300 18,800 March 30,800 20,450 April 12,800 17,300 Required: 1. Use the high-low method to estimate the variable cost per tour mile traveled and the fixed cost per month. (Round "Variable cost per tour mile" to 3 decimal places.) Variable cost per tour mile _____ real Fixed cost per mile _____ real 2. Develop a formula to express the cost behavior exhibited by the company’s maintenance cost. (Round "Variable cost per tour mile" to 3 decimal places.) Maintenance cost per mile = ____ real + _____ real X 3. Predict the level of maintenance cost that would be incurred during a month when 37,000 tour miles are driven. Maintenance cost _____ real

Explanation / Answer

Under high low method the variable overhead per unit is calculated by dividing the difference in total costs by difference in units at higher and lower production

1)variable cost per unit = diff in total costs/diff in units

=(20450-17300)/(30800-12800)=0.175 real per unit

fixed costs= total cost-variable cost
=17300-(0.175*12800)=$15,060

2)Maintenace cost= (0.175* miles travelled)+15,060

3) for 37,000 miles
cost=(0.175*37000)+15060=21,535

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