Question

A health club membership requires a one-time initiation fee and a monthly charge. For 2 months it is $100 and for 6 months it is $200. Find the monthly charge and the initiation fee.

Answer 1

Initiation fee= $50

Monthly charge= $25

Explanation:

Giving the following information:

For 2 months it is $100 and for 6 months it is $200.

To calculate the fixed cost (initiation fee) and the variable cost per month, we will use the high-low method:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (200 - 100) / (6 - 2)

Variable cost per unit= $25

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 200 - (25*6)

Fixed costs= $50

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 100 - (25*2)

Fixed costs= $50

Initiation fee= $50

Monthly charge= $25