Question

Rooter's Cleaning Services provided data concerning the costs incurred to clean hotel rooms for which hotel customers pay $150 per night. Data for the past 7 months are as follows: July 260 January February March April May June Number of rooms 250 160 200 150 270 1 70 cleaned Cleaning $6,450 $4,060 $5,100 $4,100 $6,880 $4,200 cost How much are estimated monthly variable costs using the high-low method? $6,530 Round to two decimal places. Your Answer: Answer

Answer 1

Ans : Variable cost = (C2-C1)/(X2-X1)

C2 = Total cost at high activity level = $ 6,880

C1 = Total cost at low activity level = $ 4,100

X2 = High activity level = 270

X1 = Low activity level = 150

Variable cost = $ 6,880 - $ 4100 / (270-150)

= $ 2,780 / 120

= $ 23.17