Oak Island Amusements Center provides the following data on the costs of mainten
ID: 2462233 • Letter: O
Question
Oak Island Amusements Center provides the following data on the costs of maintenance and the number of visitors for the last three years: Required: Use the high-low method to estimate the fixed cost of maintenance annually and the variable cost of maintenance per visitor. (Enter your answers in dollars not in thousands of dollars. Round your variable cost answer to 2 decimal places.) Variable cost per visitor Annual Fixed Cost The company expects a record 2,600,000 visitors next year. What would be the estimated maintenance costs? (Enter your answers in dollars not in thousands of dollars.) Estimated maintenance costsExplanation / Answer
High-Low Method Formulas
Variable Cost per Unit
Variable cost per unit (b) is calculated using the following formula:
Where,
y2 is the total maintenance cost at highest level of activity = 6450
y1 is the total maintenance cost at lowest level of activity = 3135
x2 are the number of visitors at highest level of activity = 4125
x1 are the number of visitors at lowest level of activity = 1915
The variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of units produced).
= (6450 -3135) / (4125 -1915)
= 1.5
Total Fixed Cost
Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:
Total Fixed Cost = y2 bx2 = y1 bx1
= 6450 - 1.5*(4125)
=262.5
Annual fixed cost = 262.5
b) if company expets a record 2600 visitors next year, annual maintenance cost =
=1.5*2600 + 262.5
= 4162.50
y = a + bxRelated Questions
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