Question

High-Low Method for a Service Company Continental Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Continental Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved. Transportation Costs Gross-Ton Miles January $1,372,000 378,000 February 1,529,700 423,000 March 1,081,100 274,000 April 1,466,600 409,000 May 1,230,100 329,000 June 1,577,000 445,000 Determine the variable cost per gross-ton mile and the total fixed cost. Variable cost (Round to two decimal places.) $ per gross-ton mile Total fixed cost $

Answer 1

$2.9 and $286,500

Step-by-step explanation:

Variable cost per gross ton mile= [High transportation cost - Low transportation cost] / [High gross ton miles - Low gross to miles ]

= [$1,577,000 - $1,081,100] / [445,000 miles - 274,000 miles]

= $495,900 / 171,000 miles

= $2.9

Total fixed cost

= High operating cost - [High gross ton miles × Variable cost per gross ton mile]

= $1,577,000 - [445,000 miles × $2.9]

= $1,577,000 - $1,290,500

= $286,500