Professional University teaches a large range of undergraduate courses. It is in
ID: 2644500 • Letter: P
Question
Professional University teaches a large range of undergraduate courses. It is interested in determining the cost equation for the facilities cost as a function of student credit hours so that it an more accurately budget its facilities costs as enrollment grows. Information for the high and low cost semesters and volumes for last 5 years appears below
Semester
Student Credit Hours
Facilities Cost
Spring 2007
250,000
$500,000
Fall 2004
300,000
$530,000
Using the high low method, with student credit hours as the activity driver, what is the equation for facilities cost (FC) as a function of student credit hours?
Options:
FC = $350,000 + $0.60 / student credit hour
FC = -$585,100 + $1.67 / student credit hour
FC = $1.77 / student credit hour
FC = $2 / student credit hour
Semester
Student Credit Hours
Facilities Cost
Spring 2007
250,000
$500,000
Fall 2004
300,000
$530,000
Explanation / Answer
o calculate the Variable Cost per Unit (VC)
VC = ($530,000 - $500,000) / (300,000 - 250,0000)
= $0.60
To calculate Fixed Costs (FC) :
Total Cost = FC + VC(H) - where H is the number of student credit hours. We will pick the 250,000 level of activity:
$500,000 = FC + $0.60(250,000)
$500,000 = FC + $150,000
FC = $500,000 - $150,000
FC = $350,000
To check that the solution is correct, we will calculate the total cost at the activity level of 530,000
Total Cost = $350,000 + $0.6 (300,000)
= $350,000 + $180,000
= $530,000
Therefore the equation for facilities cost (FC) as a function of student credit hours:
TC = $350,000 + $0.6H
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.