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 $614,200 246,000
February 684,800 275,000
March 484,000 178,000
April 656,600 266,000
May 550,700 214,000
June 706,000 289,000

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

Homework Answers

Answer #1
HIGH - LOW METHOD
UNDER THIS METHOD, COSTS AT HIGHEST LEVEL OF
ACTIVITY AND LOWEST LEVEL OF ACTIVITY ARE
COMPARED TO FIND OUT VARIABLE AND FIXED COSTS
PORTION
VARIBLE COST PER UNIT= (COST AT HLA - COST AT LLA)
HLA- LLA
HLA IS HIGHEST LEVEL OF ACTIVITY I.E., 289000 GROSS TON MILES
LLA IS LOWEST LEVEL OF ACTIVITY I.E., 178000 GROSS TONMILES
VARIBLE COST PER UNIT= 706000-484000
289000-178000
= 2
FIXED COST = TOTAL COST - TOTAL VARIABLE COST
AT 289000 GROSS TON MILES
FIXED COST = 706000-(289000*2)
= 128000
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