Question

Mountain Dental Services is a specialized dental practice whose only service is filling cavities. Mountain has recorded the following for the past nine months: Month Number of Cavities Filled Total Cost January 300 $5,100 February 375 5,300 March 625 6,350 April 400 5,200 May 650 6,300 June 600 6,300 July 350 5,000 August 675 6,300 September 550 6,000 Required: 1. Use the high-low method to estimate total fixed cost and variable cost per cavity filled. 2. Using these estimates, calculate Mountain’s total cost for filling 700 cavitie

Answer 1

Answer:

Results are below.

Explanation:

Giving the following information:

Month Number of Cavities Filled Total Cost

January 300 $5,100

February 375 5,300

March 625 6,350

April 400 5,200

May 650 6,300

June 600 6,300

July 350 5,000

August 675 6,300

September 550 6,000

To calculate the fixed and variable cost under the high-low method, we need to use the following formulas:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (6,350 - 5,000) / (675 - 300)

Variable cost per unit= $3.6

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

Fixed costs= 6,350 - (3.6*675)

Fixed costs= $3,920

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 5,000 - (3.6*300)

Fixed costs= $3,920

Now, for 700 units:

Total cost= 3,920 + 3.6*700

Total cost= $6,440