Nancy was reviewing the water bill for her dog day care and spa and determined that her highest bill, $3,800, occurred in May when she washed 400 dogs and her lowest bill, $2,400, occurred in November when she washed 200 dogs. What was the fixed cost associated with Nancy's water bill?

Question

Quizplus · Accepted Answer

To find the fixed cost associated with the water bill, we need to use the high-low method.

First, we need to calculate the variable cost per dog washed:
Variable cost per dog = (High cost - Low cost) / (High volume - Low volume)
Variable cost per dog = ($3,800 - $2,400) / (400 - 200)
Variable cost per dog = $1,400 / 200
Variable cost per dog = $7

Now that we have the variable cost per dog, we can use either the high or low data set to calculate the fixed cost. Let's use the low data set:
Low cost = Fixed cost + (Variable cost per dog x Low volume)
$2,400 = Fixed cost + ($7 x 200)
$2,400 = Fixed cost + $1,400
Fixed cost = $2,400 - $1,400
Fixed cost = $1,000

Therefore, the fixed cost associated with Nancy's water bill is $1,000.

Nancy Was Reviewing the Water Bill for Her Dog Day