Question

Premium Corp. offers a meal service for commuting college students. Data for the last three months appear below: Month Total Cost Meals Served January $7,500 4,300 February $8,400 5,000 March $6,000 3,800 Using the high-low method, the variable cost per meal served in the cafeteria was:

a. $3.00.
b. $2.00.
c. $2.50.
d. $1.50.

Answer 1

Using the high-low method, the variable cost per meal served in the cafeteria of Premium Corp. is a) $3.00.

Step-by-step explanation:

The high-low method is a technique used to estimate the variable cost per unit based on the highest and lowest activity levels and their corresponding costs. To calculate the variable cost per meal served in Premium Corp., we need to determine the variable cost component of the total cost. Let's compare the total costs and meals served for January and March:

- January: $7,500 for 4,300 meals served
- March: $6,000 for 3,800 meals served

Using the high-low method, we subtract the low activity level from the high activity level for both costs and meals:

- Change in cost: $7,500 - $6,000 = $1,500
- Change in meals served: 4,300 - 3,800 = 500 meals

Now we can calculate the variable cost per meal:

$1,500 / 500 = $3

Therefore, the variable cost per meal served in the cafeteria is $3.00.