Question

The utility costs for Pizza Parlour (PP) amounted to $12,520 and $16,040 in April and December...

The utility costs for Pizza Parlour (PP) amounted to $12,520 and $16,040 in April and December respectively; during these months PP sold 24,000 and 32,000 pizzas.

Required:

Using the high–low method, develop a cost equation for utility costs.

Utility cost (Y)___________ per month + __________ per pizza

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Homework Answers

Answer #1

Highest activity cost = $16,040

Lowest activity cost = $12,520

Highest activity = 32,000

Lowest activity = 24,000

Variable cost per pizza= (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)

= (16,040-12,520)/(32,000-24,000)

= 3,520/8,000

= $0.44 per pizza

Fixed cost = Highest activity cost - Highest activity x Variable cost per pizza

= 16,040- 32,000 x 0.44

= 16,040-14,080

= $1,960

Cost equation for utility costs :

Utility cost (Y) $1,960 per month + $0.44 per pizza

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