question archive AAA Company accumulates the following data concerning a mixed cost, using miles as the activity level
AAA Company accumulates the following data concerning a mixed cost, using miles as the activity level
Subject:AccountingPrice:2.84 Bought5
AAA Company accumulates the following data concerning a mixed cost, using miles as the activity level.
Miles Driven Total Cost
January 10,000 $15,625
February 8,000 13,500
March 9,000 14,400
April 7,500 12,500
Required:
- Compute the variable and fixed cost elements using the high-low method
- If it is estimated that 15,000 miles will be driven in May, what is the expected total cost for May?
- Explain the various methods used to estimate the variable component and the fixed component of the mixed cost and state which method is the most accurate? Why?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
1
Variable cost = (Cost at highest activity - Cost at lowest activity) / (Highest activity - Lowest activity)
= (15625 - 12500) / (10000-7500) = 4025 / 2500 = 1.61
Fixed Cost =
Total Cost - varibale Cost
13500 - (8000 x 1.61) = 620
2
Variable Cost =
15000 x 1.61 = 24150
Fixed Cost = 620
Total Cost = 24150 + 620 = 24770
