Boston Railroad decided to use the high-low method and operating data from the p

Question

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 base used by Boston Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved.

Transportation Costs Gross-Ton Miles

January $1,053,200 312,000

February 1,174,300 349,000

March 829,900 226,000

April 1,125,900 338,000

May 944,300 272,000

June 1,210,600 367,000

Determine the variable cost per gross-ton mile and the total fixed cost.

Variable cost (Round to two decimal places.) $ per gross-ton mile

Total fixed cost $

Explanation / Answer

Variable cost per gross ton mile = Change in cost/change in activity

= (1210600-829900)/(367000-226000)

Variable cost per gross ton mile = 2.7 per gross ton mile

Fixed cost = 1210600-(367000*2.7) = 219700

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