Mountain Dental Services is a specialized dental practice whose only service is

Question

Mountain Dental Services is a specialized dental practice whose only service is filling cavities. Mountain has recorded the following for the past nine months Number of Cavities Filled 300 500 550 700 475 425 350 575 400 Month January February March Total Cost $5,200 5,650 6,000 6,400 5,850 5,400 5,200 6,200 5,350 May June LI August September Required 1. Use the high-low method to estimate total fixed cost and variable cost per cavity filled. (Round your answers to 2 decimal places.) Fixed Cost Variable Cost per Unit 2. Using these estimates, calculate Mountain's total cost for filling 450 cavities Estimated Total Cost

Explanation / Answer

Answer:- a)-Variable Cost per cavity filled =$3.00 per cavity filled

Annual Fixed costs =$4300

Explanation:-

High-Low Method:-

Variable cost per unit (x) is calculated using the following formula:

Variable cost per unit=a2-a1/b2-b1

Where,
a2 is the total cost at highest level of activity;
a1 is the total cost at lowest level of activity;
b2 are the number of units at highest level of activity; and
b1 are the number of units at lowest level of activity

Total Fixed Cost

Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:

Total Fixed Cost = a2 – x*b2 = a1 – x*b1

We have,
at highest activity: b2 = 700; a2 = $6400
at lowest activity: b1 = 300;   a1 =$5200

Variable Cost per cavity filled = ($6400? $5200) ÷ (700 cavity filled – 300 cavity filled)  

                                     = $1200/400 cavity filled =$3.00 cavity filled
Total Fixed Cost = $6400 ? ($3.00*700 cavity filled) = $6400 – $2100 =$4300

b)-Total Estimated cost = Variable + Fixed

=($3.00 per cavity filled *450 cavity filled)+$4300 =$1350+$4300 =$5650

Variable cost per unit=a2-a1/b2-b1

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