Question

Use the following information for both Question 11 and 12. Rockette, Corp.'s utility costs are listed below: Units Utility Cost January 602 $8,334 February 565 $7,792 March 628 $8,074 April 650 $8,169 May $8,823 June 560 $7,500 July 647 $8,953 August 778 $9,366 September 800 $9,900 October 684 $8,710 November 661 $8,851 December $7,791 709 579 Management believes that utility cost is a mixed cost (part variable and part fixed). Using the high-low method, answer the following two questions. 11. What is the estimate of Rockette's monthly fixed cost for utilities? 12. What is the estimate of total utility cost if a month's activity was 700 units?

Answer 1

Answer 11 Fixed cost = $1900

Calculated as.

High point is In September = 800 units total cost = $9900

Low point is in June = 560 units total cost = $5600

Variable cost per unit = Difference in total cost at high point and low point/Difference in units

= (9900-7500)/(800-560)

= $2400/240

= $10 per unit

Fixed cost = Total cost - Variable cost at high or low point

At 800 units Fixed cost = Total cost - Variable cost

Fixed cost = $9900-800 units x $10

= $1900

Answer 12 : Total cost of 700 units = $8900

Calculated as

Total Cost of 700 units = fixed cost + variable cost

= $1900+700 units x $10

= $8900