Question

Sherri's Tan-O-Rama is a local tanning salon. The following information reflects its number of appointments and total costs for the first half of the year:
Month Number of Appointments Total Cost
January 325 5,900
February 375 6,200
March 300 5,650
April 350 5,450
May 275 5,550
June 450 6,250

Using the high-low method, calculate the total fixed cost per month and the variable cost per tanning appointment. (Round your "Variable Cost per Unit" answer to 2 decimal places and "Fixed Cost" answer to the nearest dollar amount.)

Answer 1

Answer:

C =  6.5Q + 3,762.5

Explanation:

High-low method:

We subtract the high from the low:

$\left[\begin{array}{ccc}High&375&6200\\Low&275&5550\\Diference&100&650\\\end{array}\right]$

The difference tell us that 100 untis generate 650 additional cost

So we can calcualte the variable cost:

cost 650 / Unis 100 = variable cost 6.5

Now on low or high we solve for fixed cost:

cost = 6.5 x 375 + fixed cost

Total Cost 6200

Variable 2437.5

Fixed Cost 3762.5

cost = 6.5 x 275 + fixed cost

Total Cost 5550

Variable 1787.5

Fixed Cost 3762.5

the formula will be:

C =  6.5Q + 3,762.5