Question

The ACC Tutoring Service provides tutoring to accounting students. The volume of tutoring is low at the beginning of the semester and increases before exams. ACC had its highest level of service in May when they provided 4,300 hours of tutoring at a total cost of $125,000 and it lowest level of service in January when they provided 1,500 hours of tutoring at a total cost of $55,000. Using the high-low method, the estimated fixed costs are

Answer 1

Answer:

Estimated fixed cost is $17,500.

Explanation:

Applying the high-low method, first, we calculated the variable cost per unit of the firm: ( 125,000 - 55,000) / (4,300 - 1,500) = $25 per tutoring hour.

We have : Total cost of a firm = Variable cost per tutoring hour x tutoring hour delivered + fixed cost.

put the number in the formula, using the high point ( using low point will also result in the same result of fixed cost), we have:

125,000 = 25 x 4,300 + fixed cost <=> Fixed cost = 125,000 - 25 x 4,300 = $17,500.