8 EX 19-08 ALGO (A High-Low Method for a Service Company Boston Raïlroad dedded

Question

8 EX 19-08 ALGO (A High-Low Method for a Service Company Boston Raïlroad dedded 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 Gross-Ton Miles $967,800 1,079,000 762,600 1,034,500 857,700 1,112,400 235,000 262,000 170,000 254,000 204,000 276,000 per gross-ton mile 9. EX.19.22 ALGO (Algonithmac) 11/20/2017

Explanation / Answer

Calculation of variable cost per gross ton per mile:

High to low method= (highest cost - lowest cost )/ (highest units - lowest units)

High to low method = ($1,112,400 - $762,600) / (276,000 - 170,000)

High to low method = $349,800 / 106,000

Variable cost = $3.30 per gross ton mile

For calculation of total fixed cost, take highest units and highest cost for the month of june:

Total cost of June = Variable cost + Fixed costs

Fixed costs = Total cost of june - Variable cost per unit * variable cost gross ton mile for the month of June

Fixed costs = $1,112,400 - (276,000* $3.30)

Fixed costs = $1,112,400 - $910,800

Fixed costs = $201,600

Month Transportation costs Gross-Ton Miles January $967,800 235,000 February $1,079,000 262,000 March $762,600 170,000 April 1,034,500 254,000 May $867,700 204,000 June $1,112,400 276,000 Highest $1,112,400 276,000 Lowest $762,600 170,000

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