Princeton offers a large range of undergraduate courses.The University is interested in determining the cost equation for the facilities cost as a function of student credit hours so that it can more accurately budget its facilities costs as enrollment grows.Information for the high and low cost semesters and volumes for last 5 years appears below: $$\begin{array} { c c c }
\text { Semester } & \text { Student Credit Hours } & \text { Facilities Cost } \
\text { Spring 2016 } & 160,000 & \$ 750,000 \
\text { Fall 2017 } & 140,000 & \$ 660,000
\end{array}$$ Using the high-low method, with student credit hours as the activity driver, what is the equation for facilities cost (FC) as a function of student credit hours?

Question

Princeton offers a large range of undergraduate courses.The University is interested in determining the cost equation for the facilities cost as a function of student credit hours so that it can more accurately budget its facilities costs as enrollment grows.Information for the high and low cost semesters and volumes for last 5 years appears below: $$\begin{array} { c c c } 
\text { Semester } & \text { Student Credit Hours } & \text { Facilities Cost } \
\text { Spring 2016 } & 160,000 & \$ 750,000 \
\text { Fall 2017 } & 140,000 & \$ 660,000
\end{array}$$ Using the high-low method, with student credit hours as the activity driver, what is the equation for facilities cost (FC) as a function of student credit hours?

Quizplus · Accepted Answer

The high-low method calculates the variable cost per unit as the change in cost divided by the change in activity. Here, ($750,000 - $660,000) / (160,000 - 140,000) = $4.50 per student credit hour. The fixed cost is then calculated by subtracting the total variable cost from the total cost at either high or low activity level, resulting in $30,000. Thus, the cost equation is FC = $30,000 + $4.50 per student credit hour.

Princeton Offers a Large Range of Undergraduate Courses Using the High-Low Method, with Student Credit Hours as the Interested