Question

# High-Low Method for a Service Company Boston Railroad decided to use the high-low method and operating...

High-Low Method for a Service Company

Boston Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed “gross-ton miles,” which is the total number of tons multiplied by the miles moved.

 Transportation Costs Gross-Ton Miles January \$1,452,500 387,000 February 1,619,400 432,000 March 1,144,500 280,000 April 1,552,600 419,000 May 1,302,200 337,000 June 1,669,500 455,000

Determine the variable cost per gross-ton mile and the fixed cost.

 Variable cost (Round to two decimal places.) \$ per gross-ton mile Total fixed cost \$

 Variable cost = [Transportation cost at highest gross ton miles-Transportation cost at lowers gross ton miles]/[Highest gross ton miles -Lowest gross ton miles] = (1669500-1144500)/(455000-280000) = \$                 3.00 Per gross ton mile Fixed cost = Transportation at highest gross ton miles-Highest gross ton mile*Variable cost per gross ton mile = 1669500-455000*3 = \$         3,04,500

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