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 find the variable cost per client-visit:

Variable cost per client-visit = (Cost at high activity level - Cost at low activity level) / (High activity level - Low activity level)
= ($90,085 - $76,485) / (43,900 - 33,400) = $1.32

Next, we can use this variable cost per client-visit to find the fixed cost:

Fixed cost = Total cost - Variable cost * Total client-visits
= $90,085 - $1.32 * 43,900 = $14,330

Therefore, the estimates for the variable and fixed components of the supply cost are $1.32 per client-visit and $14,330 per month, respectively. Rounding the variable component to the nearest cent gives $1.01, and rounding the fixed component to the nearest dollar gives $14,330. The best choice is B.

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