The Business School at Eastern College is accumulating data as a first step in t

Question

The Business School at Eastern College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: The controller's office has analyzed the data and has given you the results from the regression analysis: If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for administrative salaries is:

Explanation / Answer

Cost at highest level of activity             225,580.00 Cost at Lowest level of activity                82,613.00 Highest level of activity                  1,392.00 Lowest Level of activity                      115.00 Variable cost per unit = (225580 - 82613)/(1392-115) Variable cost per unit = 142967/1277 Variable cost per unit = 111.96 Fixed Costs = 225,580 - 1392*111.96 Fixed Costs = 225,580 - 155,848.32 Fixed Costs = 69,731.68

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