Question

Supplies costs at DePaul Corporation's chain of gyms are listed below:

	Client- Visits			Supplies Cost
March	12,855				$	23,598
April	12,283				$	23,278
May	12,493				$	23,415
June	12,850				$	23,607
July	13,003				$	23,688
August	12,794				$	23,562
September	13,083				$	23,878
October	12,765				$	23,541
November	13,018				$	23,687

Management believes that supply cost is a mixed cost that depends on client-visits.

REQUIRED

1. Use the high-low method to estimate the variable cost per unit for Supplies.

2. Use the high-low method to estimate the total fixed cost for Supplies.

3. Estimate the cost formula for DePaul’s Supplies Cost.

Use the cost formula to estimate the supply cost for 12,000 client visits

Answer 1

Variable cost per unit

= (Highest activity cost - Lowest activity cost)/ (highest activity units - Lowest activity units)

= 23,878 - 23,278) / 13,083 - 12,283

= 600/800

= 0.75 per unit

Fixed cost = Highest activity cost - (Variable cost per unit* Highest activity units)

= 23,878 - (0.75*13,083)

= 23,878 - 9,812.25

= $14,065.75

Total cost of supply for 12,000 client

= 14,065.75 + 12,000*0.75

= 14,065.75 + 9,000

= $23,065.75

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