2) ETutor is an online tutoring service provider that is particularly popular wi

Question

2) ETutor is an online tutoring service provider that is particularly popular with college students. The company is interested in estimating the fixed and variable components of its tutoring services costs. The manager believes that these costs are driven by the number of hours of tutoring services provided. The following information was gathered for the last six months of business: Month January February March April May Number of Hours 25,000 41,000 29,000 31,000 34,000 18,000 Tutoring costs $ 308,000 420,000 352,000 373,000 378,000 252,000 June Required: 1) Use the high-low method to estimate the total fixed cost and the variable cost per hour. (Round the variable cost per hour to two decimal points.

Explanation / Answer

Cost in June is low and cost in Feb is high

Variable Cost = Change in Cost / Change in activity

= (420000 - 252000) / (41000-18000)

= 168000 / 23000

= $ 7.30 per hour

Fixed Cost = Total Cost - Variable Cost

= 420000 - 41000 x 7.30

= $120521.74

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