Supply costs at Chobot Corporation's chain of gyms are listed below: Management believes that supply cost is a mixed cost that depends on client-visits.Use the high-low method to estimate the variable and fixed components of this cost.Compute the variable component first,rounding off to the nearest whole cent.Then compute the fixed component,rounding off to the nearest whole dollar.Those estimates are closest to:

Question

Supply costs at Chobot Corporation's chain of gyms are listed below:  Management believes that supply cost is a mixed cost that depends on client-visits.Use the high-low method to estimate the variable and fixed components of this cost.Compute the variable component first,rounding off to the nearest whole cent.Then compute the fixed component,rounding off to the nearest whole dollar.Those estimates are closest to:

Quizplus · Accepted Answer

Using the high-low method, we first need to find the highest and lowest levels of client-visits and their corresponding supply costs. From the table, we can see that the highest level of client-visits is 32,000 with a corresponding supply cost of $47,500, and the lowest level of client-visits is 16,000 with a corresponding supply cost of $26,500.

Next, we need to compute the variable cost per client-visit. This is done by subtracting the lowest supply cost from the highest supply cost and dividing by the difference in client-visits.

Variable cost per client-visit = ($47,500 - $26,500) / (32,000 - 16,000) = $21,000 / 16,000 = $1.31, rounded to the nearest cent.

Finally, we can compute the fixed cost by using either the high or low data point and subtracting the variable cost per client-visit times the corresponding number of client-visits.

Using the high data point: 
Fixed cost = $47,500 - ($1.31 * 32,000) = $3,380, rounded to the nearest dollar.

Using the low data point:
Fixed cost = $26,500 - ($1.31 * 16,000) = $300, rounded to the nearest dollar.

Since the two estimates for fixed cost are quite different, we can take the average of the two to get the most likely value: ($3,380 + $300) / 2 = $1,840, rounded to the nearest dollar.

Putting the two components together, we get an estimate of supply costs as follows: 
Variable cost per client-visit: $1.31 
Fixed cost: $1,840 
Therefore, the estimated supply cost per client-visit is $1.31 and the estimated fixed supply cost per month is $1,840.

The closest answer to this estimate is B) $1.01 per client-visit; $14,330 per month.

Supply Costs at Chobot Corporation's Chain of Gyms Are Listed