Explanation:
The computation of the fixed cost and the variable cost per hour by using high low method is shown below:
Variable cost per mile = (High Operating cost - low operating cost) ÷ (High miles - low miles)
= ($845 - $625) ÷ (3,350 miles - 2,250 miles)
= $220 ÷ 1,100 miles
= $0.2 per miles
Now the fixed cost equal to
= High operating cost - (High miles × Variable cost per miles)
= $845 - (3,350 miles × $0.2 per miles)
= $845 - $670
= $175
And, the contribution margin income statement is presented below:
Sales (1,400 × $0.6) $840
Less: Variable cost (1,400 × $0.2) ($280)
Contribution margin $560
Less: Fixed cost ($175)
Net operating income $385
Answer:
b. When using ABC for service industries, special methods must be used to identify cost pools and cost drivers due to the unique nature of the services offered.
Explanation:
The cost pool method are the same we should look for activities which add value to the product to provide a more accurate product costing.
In cases of services the company will also determinate activities considering this premise therefore, there is no especial nature to offer to the client.
