Question

Supply costs at Coulthard Corporation's chain of gyms are listed below: Client-Visits Supply Cost March 11,665 $ 28,352 April 11,461 $ 28,296 May 11,993 $ 28,440 June 13,800 $ 28,928 July 11,725 $ 28,368 August 11,211 $ 28,229 September 12,005 $ 28,443 October 11,696 $ 28,360 November 11,844 $ 28,400 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:

Answer 1

Using the high-low method, the variable cost per client-visit at Coulthard Corporation is calculated to be $0.73, and the fixed cost component is estimated to be $18,832.

Step-by-step explanation:

To estimate the variable and fixed components of supply cost using the high-low method, we first identify the highest and lowest levels of activity and their corresponding total costs. For Coulthard Corporation, the highest level of activity is in June with 13,800 client-visits and a cost of $28,928, and the lowest level of activity is in August with 11,211 client-visits and a cost of $28,229. To calculate the variable cost per client-visit, we use the formula:

Variable cost per unit = (Cost at high activity level – Cost at low activity level) / (High activity level – Low activity level)

In this case, variable cost per client-visit = ($28,928 - $28,229) / (13,800 - 11,211) = $0.73 per client-visit.

Next, to find the fixed component, we use the total cost equation:

Total cost = Fixed cost + (Variable cost per unit × Activity level)

We substitute the values for the highest activity month (June) to solve for fixed cost:

$28,928 = Fixed cost + ($0.73 × 13,800)

Fixed cost = $28,928 - ($0.73 × 13,800) = $18,832 (rounded to the nearest whole dollar).

Thus, the estimated variable component is $0.73 per client-visit, and the estimated fixed cost is $18,832.

Answer 2

The variable cost per unit and the fixed cost is $0.27 per unit and $25,202 respectively

Step-by-step explanation:

The computation of the variable and fixed components are shown below:

For variable cost per unit, it equals to

= (High supply cost - low supply cost) ÷ (High client visit- low client visit)

= ($28,928 - $28,229) ÷ (13,800 - 11,211)

= $699 ÷ 2,589

= $0.27 per unit

Now the fixed component equal to

= (High supply cost) - (variable cost per unit × high client visit)

= $28,928 - ($0.27 per unit × 13,800)

= $28,928 - $3,726

= $25,202