In a week when hotel room cleaning costs were $18,000, 600 rooms had been sold. In a week when hotel room cleaning costs were $22,000, 800 rooms had been sold. Use the high-low method to determine the hotel's fixed cost per week to clean rooms.

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Quizplus · Accepted Answer

The high-low method involves calculating the variable cost per unit using the highest and lowest levels of activity. The difference in costs divided by the difference in units gives the variable cost per unit. Here, ($22,000 - $18,000) / (800 - 600) = $4,000 / 200 = $20 per room. To find the fixed cost, subtract the total variable cost at either level from the total cost at that level. Using the lower level, $18,000 - ($20 * 600) = $18,000 - $12,000 = $6,000.

In a Week When Hotel Room Cleaning Costs Were $18,000